The Effect Of China Interest Rate Marketization On Commercial Bank Performance

The paper studies the impact of China’s interest rate market-oriented reform on theperformance of commercial banks, in order to provide the reference for the monetaryauthorities on controlling the process of market-oriented interest rate reform, and forcommercial banks to utilize the impact of interest rate marketization to effectively respond torelated challenges and opportunities.Firstly, this paper reviews the relevant theories and analyzes the reform of interest ratemarketization of China, and then systematically summarizes the main pathways of the interestrate marketization effect on the performance of commercial banks, which are classified as"competitive effect""spread effect" and "risk effect" as direct effect, and "management abilitypromotion effect""income allocation effect" as indirect effects, namely "3+X effect".Secondly, through combining interest rate marketization theory with the actual situations ofChina,this paper proposes3approaches to quantify the process of interest rate liberalizationfrom different perspectives. Finally, this paper empirically tests the impact of china’s interestrate maketization on the performance of commercial banks.The empirical result shows that in China, interest rate market-ization has a significanteffect on the performance of commercial banks. the higher the degree of interest ratesmarketization, the better the commercial banks performs. At the same time, protected policyspreads has created huge rent for China’s commercial banks, real interest rate and thecommercial bank performance are negatively correlated. which shows that interest ratemarketization is like a two-bladed sword, on one hand it enhances the performance ofcommercial banks through “management ability promotion effect”, on the other hand, itgreatly reduces the policy rent of banking sector and poses a threat to the existing profit modelof China banking industry.