Study Of Changes In Interest Rates On The Performance Impact Of China's Commercial Banks

The main purpose of this study is to discuss the effects of interest rate fluctuations on the performance of domestic listed banks. Author began with the process of market-directed interest rate, introduced and analysed several market interest rate, finally, selected an available interest rate and applied it into the model. Empirical target of this article is 14 domestic banks. Due to the constraint of data sources, study period from January 2002 to March 2009, with their seasonal balance sheets and income statements. Market interest rate data come from China - 90 days Interbank Repurchase agreements (repos) Rates.This study select the partial adjustment model, developed by Mark J.Flannery, was employed to analyze the impacts of interest rate fluctuations.90 days Interbank Repurchase agreements (repos) Rates serves as proxy of market interest rate in this study. Because of domestic banks' 90% operating revenue come from the difference of the interest revenue of loan between the interest expenses of deposit, in addition, the purpose of this study is to analyze the impacts of interest rate fluctuations on banks' performance, so using the interest revenue of loan and the interest expenses of deposit substitute the operating revenue and operating expenses individually.In the empirical study, regression estimate methods are Ordinary Least Square (OLS) and Seemingly Unrelated Regression (SUR). Using system estimate methods estimated interest revenue, interest expenses and net interest revenue three regression lines. The empirical study shows the following results:1. The sample banks being examined tend to borrow long and lend short mostly.2. Interest rates have strong Influence on interest revenue, cost of domestic banks and its' net interest revenue. Interest fluctuations has markedly influence on interest revenue and net interest revenue is Bank of Communications.3. The new assets increased have positive effect with net interest revenue of domestic banks, but some of them have negative effect.In the last part of this study, based on the above empirical analysis, author brought forward some Countermeasures on Asset Liability Management and new assets scale.