China's Commercial Banks' Non-interest Income Situation And Empirical Study Of The Impact Of Bank Performance And The Level Of Risk

Chinese banks have long tradition to rely on the interest income as the main income source, but the gradual changing environment in Chinese financial market makes the banking sector to reconsider their operating models. The favorable regulation toward nontraditional activities, interest liberalization and financial disintermediation all stimulate banks to realize the strategic importance of noninterest income. The noninterest income has developed very rapidly in recent years, due to the unique Chinese economy and regulation environment, the development of noninterest income in Chinese commercial banks also follows a different pattern. In this article we analyze the current condition of this new business in Chinese commercial banks comprehensively and list some features which are quite different from western banks.In the empirical part of this article, the volatility nature and diversification effects of noninterest income are examined respectively, and the conclusion is that it has higher risk than traditional borrowing and lending business, and its positive correlation with interest income indicates that many nontraditional activities are derived from banks’ traditional business. But we also find that the increasing volatility in operating income in recent year is the result of higher risk in interest income rather than the expanding non-interest income since its volatility is declining.We also test the effects of developing noninterest income in banks’financial performance, pooled cross-section (banks) and time series data are employed in the empirical estimation, with sample comprising 10 Chinese commercial banks and the period 2004-2010. The empirical results for the whole sample show that the entry into nontraditional business can improve banks’financial performance.