Research On The Effect Of Non-interest Business On The Performance Of Commercial Banks In China

The financial environment in west countries has changed greatly since the nineteen seventies. Financial regulation relaxing, the development and application of financial technology and financial institutions’competition reduce the traditional interest income of commercial banks. The survival pressure is more and more big. In this environment, western commercial banks have gradually recognized the importance of business transformation and increased the intensity of the development of non-interest business.In our country, more and more foreign banks enter the domestic market by the opening of domestic financial market. At the same time, the non-bank financial institutions also continue to rise, which will bring great competitive pressure to domestic commercial banks relying on the traditional interest income. In order to occupy a favorable position in the fierce market competition, China’s commercial banks begin to realize the importance of the adjustment of income structure, attempting to improve its performance by developing non-interest business. However, whether the increasing of non-interest business proportion can improve the bank performance, we have no consistent conclusion and there are many issues worthy studying.Firstly, based on previous research the paper illustrates the definition of non-interest income at home and abroad. Based on it, this paper interprets the theoretical base of the development of non-interest business from the enterprise diversification, scope economy and financial innovation.Then, this paper analyzes the differences between the development of non-interest business of western country and China. Tn the part of empirical research, this paper adopts nonlinear panel smooth transition regression (PSTR) model to make an empirical study on the effect of non-interest income and fees and commission income on bank performance.We choose the data of2001to2011of106Chinese banks as samples.The results show that the inflection point of non-interest income on bank performance is about21%, when ratio of non-interest income is less than21.33%, the bank performance will be improved, but the increasing speed gradually decreases; when the non-interest income is greater than21.33%, the increasing of the ratio not only can not enhance the performance of banks, but also it will reduce the bank performance; the inflection point of net fee and commission income on bank performance is about25%,when the ratio of net fee and commission income is less than25.21%, the increasing of this ratio can increase the performance of banks, but the marginal contribution gradually decreases; when the proportion of net fee and commission income is more than25.21%, the increasing of this ratio will reduce bank performance.Tn the end of this part, this paper interpret the cause of the nonlinear results from the angles of income and cost of non-interest income. Finally, based on the conclusion, this paper offers some suggestions. On the nonlinear relation between non-interest income and bank performance, on the one hand, the government departments should speed up the process of marketization of interest rate,on the other hand, commercial banks should develop high value-added non-interest business, improve business structure, and strengthen cooperation with non-bank financial institutions to realize win-win; on the nonlinear relation between net fee and commission income and bank performance, commercial banks should plan the scale of non-interest income reasonably according to the actual situation and establish perfect talent training system and improve the overall quality of staff.The innovations of this paper are mainly reflected in the following two aspects: on the one hand, this paper not only discusses the developing situations of China’s non-interest business, but also summarizes the developing characteristics of western developed countries’non-interest business and discusses the development gaps of non-interest business between China and western countries; on the other hand, previous research mainly analyze the nonlinear relationship between non-interest business and bank performance from theoretical perspective, this paper builds a nonlinear panel smooth transition regression (PSTR) model to check up the nonlinear relationship and interpret the causes of the nonlinear results from the angles of income and cost of non-interest income.