The Study Of Chinese Commercial Bank Loan Pricing Behavior

In the1990s, China began to promote interest rate marketization reform, the central bank announced the floating range of upper limit of the financial institutions deposit rate was adjusted to1.1times the benchmark interest rate, the floating range of the lower limit of lending rates could be adjusted to0.8times the benchmark interest rate on June8,2012. Previously the floating range of upper limit for deposit rate which was regulated was finally broken, interest rate marketization reform has taken a new step. With the continuous progress of China interest rate marketization reform, more and more commercial banks are facing challenges from the Banks all around the world, commercial bank lending pricing also becomes market-oriented, developing a reasonable price of loans is the main means for commercial banks to increase profitability and improve their competitive of development. The loan pricing behavior of commercial banks directly determines the net interest margin, in turn, the net interest margin of commercial banks reflects the bank loan pricing behavior of commercial banks and shows the operating results and management level. The United States is one of the first county that complete interest rate marketization and the relevant systems run most perfectly, China is in the initial stage of the interest rate marketization, the loan pricing behavior between United States and china is significantly different, the purpose of this research is to discover differences of the bank loan pricing capacity between United States and China through the empirical test of net interest margin, so as to reveal the root causes of poor loan pricing power of the Chinese banking industry.Firstly according to the dealership model of Ho, Saunders (1981), as well as the extended model, this thesis relaxes the assumptions and puts the factors affecting commercial banks net interest margin, such as the degree of monopolization of the market, the size of the transaction, the degree of risk aversion, interest rate risk, default risk operating costs and business diversification into the pure margin model, the purpose is to prove how these factors affect the net interest margin. Secondly, based on the Agents theoretical model, this thesis introduces factors such as the implicit interest payments, opportunity costs, bank management efficiency, liquidity risk, GDP growth rate and inflation rate which affect the net interest margin into model and select feasible generalized least squares model (FGLS) to conduct empirical research of the commercial banks in China and the United States. This thesis uses the2003-2010financial statements of the79commercial banks in China and75commercial banks in the United States as well as GDP growth rate, CPI growth rate. Through the empirical test of the factors affecting the net interest margin in China and the United States, this thesis analyses the factors net affecting the interest margin and compare differences between the United States and China so as to reveal the root causes of poor loan pricing power of China.The research results show that the difference of the factors affecting commercial banks net interest margin between the United States and China is mainly reflected in cost and risk. Firstly, Chinese commercial banks net interest margin is mainly determined by operating costs and the implied interest. Secondly, the default risk significantly impacts the net interest margin of U.S. commercial banks, there4s, no significant impact on China’s commercial banks. The loan pricing of U.S. commercial bank mainly considers covering the risk of default. Because China has not yet completed the interest rate marketization, risk awareness is not strong, the commercial banks pay more attention to cost and institutional factors in the pricing of the loan neglecting the risk factors. Interest rate risk significantly impacts China’s commercial banks, while the impact of the United States was not significant. Commercial bank lending and deposit rates must change around the benchmark interest rate. China must focus on changes in the benchmark interest rate of the central bank. Because of interest rate marketization reform of China, the role of management efficiency, default risk is constantly growing. United States has completed the interest rate marketization, net interest margin is mainly determined by market factors, the influence of the Government’s benchmark interest rate is small, the impact of the interest rate risk of commercial banks was not significant. Finally, in the interest rate market, the commercial banks in the United States pay more attention to macroeconomic impact in loan pricing. All in all, China has not yet to realized interest rate marketization, commercial banks pay more attention to costs and institutional factors while ignoring the risk factors in loan pricing. The United States fully realized interest rate marketization, the commercial bank loan pricing concerns more about the risk factors and macroeconomic changes. With the continuous progress of China’s interest rate marketization, China should strengthen the awareness of risk management and focus on the volatility of the macroeconomic environment.This article has four chapters. The first part is an introduction; it introduces the scientific background and significance of the topics in this article, and domestic and foreign research about commercial banks net interest margin. The second part is the influencing factors of net interest margin; based on underlying assumptions, the thesis proves factors influencing pure interest margins through math. The third part is empirical test of commercial banks net interest margin impact factors of China and The United States:mainly based on the main factors of pure interest margins and other factors that affect commercial banks net interest margin in-the second part, this thesis uses the2003-2008data of commercial banks selecting feasible generalized least squares model (FGLS) to find the difference of net interest margin factors between China and the United States and analysis the reasons, revealing the the weakness of Chinese commercial bank loan pricing, and make policy recommendations. The fourth part is the conclusion. By the second and third part of the theoretical and empirical analysis, it makes the corresponding conclusions and outlook.