The Effect Research Of Non-Interest Income On ROE Of Small And Medium Commercial Banks In China

Like other companies,commercial banks which act as special companies operatingmoney also pursue more profit.Operating income of bank is from interest income andnon-interest income.In the past,commercial banks obtained most of their income byrelying on "absorbing deposits,offering loans,then earning interest spreads ". In addition,this way of obtaining income is relatively stable with less risks. Therefore,commercialbanks in the past devoted themselves to operating interest income business,which ismainly lending business.With the further deepening of financial reform,frequent appearance of financialinnovation,the occurence of financial disintermediation,the inflow of private capital andso on,banks are facing huge challenges.The competition among banks has greatlyintensified and the competition between banks and other financial institutions alsoincreases.In this case, commercial banks have to seek new sources of revenue in orderto keep continuity of operating and a certain level of profitability.Especially for a greatnumber of small and medium commercial banks, they must develop various non-interestincome items to excavate new sources of profit.Because the strength of city commercialbanks and rural commercial banks in terms of funds and so on is not very strong,theycan’t compete with large state-owned commercial banks.These small and mediumcommercial banks must develop diversified non-interest income businesses according totheir own advantages.Non-interest income contains many items.Banks will focus on it at present.Tobanks, there is much room for development in this area.Banks can continue to improvethe share of non-interest income to achieve the objective of diversification.Withdifferent benefits and risks of the detailed non-interest income items, the effects on theoperating efficiency of banks are different.Therefore,the study of non-interest incomehas certain practical significance.Firstly,this paper studies three types of small and medium commercial banks,analyzes the tendency of non-interest income and its components of joint-equitycommercial banks,city commercial banks and rural commercial banks.In addition,thispaper expounds the necessity of developing non-interest income items and reveals themeans of running non-interest income business.Then,the main factors of ROE areanalyzed,and the relationship between non-interest income and ROE is focused on.In the empirical analysis of Chapter4,this paper chooses to study12national joint-equitycommercial banks,10city commercial banks and7rural commercial banks in Chinafrom2007to2013.Financial data which we need are obtained by Bankscope databaseand annual reports of banks.The panel data regression analysis is used to study therelationship between non-interest income with its components and ROE of banks in thethree samples by Eviews6.0.The empirical results show that non-interest income ispositively correlated to ROE of joint-equity commercial banks,city commercial banksand rural commercial banks.In other words,raising the proportion of non-interestincome plays a positive role in increasing ROE of banks.What’s more,the results ofthree samples are significant.Various components of non-interest income have differentinfluences on ROE of the banks in the three samples.For joint-equity banks,gains fromchanges in fair values have significant positive effects on ROE.But foreign exchangegains or losses have significant negative effects.For city commercial banks,investmentincome has significant positive effects on ROE.For rural commercial banks, net fee andcommission incomes and foreign exchange gains have significant positive effects onROE.In addition,detailed explanations are made for the conclusions which are drawnfrom the empirical research.Finally,several suggestions are put forward that how smalland medium commercial banks in China should further promote the development oftheir non-interest income business.Research prospects are also made in the hope ofhelping further study.