China's Commercial Banks Non-interest Income Accounting For Operational Risks

Since financial liberalization advances and competition of banking industry grows, it becomes quite important and urgent for commercial bank in China that transferring the traditional profitable model to a new one by increasing non-interest income in order to acclimatize to market competition.In view of the tendency that commercial bank puts more emphasis on non-interest business and the proportion of non-interest income keeps raising, this paper states the history, the development route and gap compared with international leading banks. The paper establishes model based on assets portfolio theory to make empirical analysis on relation between the non-interest income and commercial bank's operating risk and argues the influence patterns from volatility and correlation relationship aspects.According to the analysis, the paper gets some conclusions as following. Firstly, the non-interest business of commercial bank in China develops rapidly both on operating pattern and scale, and 50% of the income comes from service fees. Compared with international leading counterparts, however, the proportion of non-interest income is relatively small. Secondly, banks with bigger proportion of non-interest income are suffered with lower risks. Thus, dispersive business style helps banks reduce operating risk to a certain degree. Thirdly, calculation indicates that bank reduces risks mainly by keep low correlation relationship between the two types of incomes rather than low volatility.