The Research On Non-Interest Income And Management Of Commercial Banks In China

Commercial banks of China suffered from a decline in interest margins andprofitability in recent years. Foreign banks reacted to this new environment bydiversifying into non-interest income activities by reducing the importance of theirtraditional credit activities. Before deciding whether to follow them, it’s important tofind that how non-interest income has affected the management of commercial banks.This paper works on how non-interest income has affected the risk, profitabilityand loan pricing of commercial banks. Based on the characteristics of non-interestincome, the cross selling and the portfolio theory the writer makes the hypothesis ofthe impact of non-interest income. In the empirical study, the writer establishesreasonable panel data models through factor analysis, correlation analysis and othermethods. Then estimating the parameters by the generalized least squares method.The writer find that higher income share from non-interest income which expand theincome of commercial banks is associated with higher profitability. But it’s instabilityleads to higher level of risk too. Moreover, the commission and fee income based onthe traditional business can improve the profitability and reduce the level of risk. Theinvestment income is not significantly related to the risk and loan pricing ofcommercial banks. But it can reduce commercial banks’ profitability. Notably, thewriter find that the higher the non-interest income ratio share, the lower the lendingrate become. So dose the commission and fees income. It signifies that the crossselling phenomenon is existing in chinese commercial banks.