| Bank net interest margin is the ratio of net interest income to average earning assets, and net interest income is the main source of the bank profits, reflecting the difference between assets return and liabilities cost. In essence, net interest margin is the results of bank deposit and loan pricing behavior, precipitating the capabilities of bank lasting profitability and risk management. As market-oriented reform of interest rates in our country, commercial banks have more independent pricing right, but also have to face greater interest risk and credit risk. So would these two types of risks affect net interest margin in the Chinese Banking System? Could commercial Banks adjust the pricing of assets and liabilities items to improve net interest margin to compensate for the risk premium? These are the focus of this article.This paper studies the above questions from the theoretical and empirical aspects. In theory, this article illustrates the impact mechanism of interest risk and credit risk on net interest margin by introducing the bank behavioral model. According to the model, the interest risk and credit risk can cause the change of net interest income through influencing the pricing decisions of commercial banks and the changes of bank asset-liability structure and quantity, ultimately affects the level of net interest margin.In evidence, this article selects some impact variables of net interest margin based on the development of Chinese banking industry, and divides the variable factors into interest risk variable, credit risk variable and control variable. The interest risk is measured by four indicators, including short-term interest rate volatility, benchmark interest rates, non-maturing deposits ratio and interest rate sensitive ratio. The indicators that measure the credit risk include loan-to-earning assets ratio, loan loss reserves, non-performing loan ratio and net write-off rate. Control variables include asset size, non-interest income rate, capital adequacy ratio, cost to income ratio, operating cost and inflation rate.Firstly, this paper uses the static panel model to test empirically the data of 26 commercial banks in 2000-2009. The results show that, in the interest rate risk measure, the net interest margin has a positive correlation with short-term interest rate volatility and benchmark interest rate, and has a negative correlation with interest rate sensitive ratio, so net interest margin of Chinese commercial banks reflects the interest rate risk premium. In the credit risk measure, the net interest margin has significantly positive correlation with net write-off rate, so net interest margin of Chinese commercial banks also reflects the credit risk premium. In the control variables, the net interest margin has a negative correlation with asset size, non-interest income rate and cost to income ratio, but has negatively correlated with capital adequacy ratio, operating cost and inflation rate.Next, this paper fixes deposit and loan interest rate liberalization reform in 2004 for the sector, then divides the sample period into two phases. To analysis the affect changes of interest risk and credit risk on net interest margin of Chinese commercial banks in this two stages, this paper carried out the regression. The results show that three interest risk measures have shown significant differences in the two-stage effects, so net interest margin has gone the changes from not reflect the interest risk premium to be able to effectively reflect the risk premium. Other than the affecting process of interest risk, in the two stages, net interest margin both reflect the credit risk premium.Finally, the article divides commercial banks into state-owned commercial banks, joint-stock commercial banks and city commercial banks, using dynamic panel model to analyze different effect of interest risk and credit risk factors on net interest margins of these three types of banks. The results shows the sensitivity of net interest margins of these three types of commercial banks to interest risk and credit risk is different, reflection degree to risk premium is also different. The net interest margin of state-owned commercial bank is very sensitive to interest risk and credit risks, simultaneously, reflects two kinds of risk premiums. The net interest margin of joint-stock commercial bank is also sensitive to interest risk and credit risks, but only reflects the interest risk premium, with the rise in credit risk, it has declined. The net interest margin of city commercial banks is not sensitive to interest rate risk, and the sensitivity to credit risk is lower than the other two types of commercial banks, but to some extent, its net interest margin still reflects the credit risk premium. |
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