The Correlation Between Non-interest Income Ratio And Bank’s Performance

With the financial liberalization and financial deregulation, economic globalizationgrows in intensity, the competition in financial market is intense with each passing day,the commercial banks is under the pressure of the tightening interest margin, the feeincome is unable to meet the development of the commercial bank and the pursuit ofprofit. So banking industry in western countries has developed diversified business, andfocused on the non-interest income. It can be said that, non-interest business hasdeveloped steadily and fast, promoted the business transformation since1970s.The proportion of non-interest income has been remained relatively low in China,the commercial banks still rely heavily on net interest income caused by deposit and loanspreads. Due to financial disintermediation and some other reasons, people have realizedthe importance to adjust the income structure of China’s commercial banks and providedto create more non-interest income. How it will affect banks’ performance is a questionto be discussed.In this article，we start with the concept and definition of non-interest income, thenwe describe the character of it and distinguish between it and intermediate business. Thenext, we provide the development of China’s commercial banks’ non-interest business,including the history, the present situation, the risk and the restricted factors..In theempirical analysis part，we select the financial data of10commercial banks during theperiod of2001to2010as the research sample. The result indicates that there is a positivecorrelation between non-interest income ratio and banks’ performance, but we also needto pay attention to limit operating expenses.Finally, some suggestions are given to China’s commercial banks on how to improvenon-interest income and enhance banks’ performance.