The Research Of Interest Rate Liberalization Impact On The Profitability Of Chinese State-owned Banks

Since 1996, the interest rate liberalization reform has made much progress in China. Nowadays, the transactions among the cash bond, the interbank offered rate(CHIBOR) of china and the bond redemption rate are free in the national interbank market. And also, the transactions among the discount and rediscount rate, treasury bond rate and financial bond issued by policy banks are free. The financial institutions have more authorities to adjust the loan rate and the foreign currency loan rate. The types of loan rate have decreased and the range of adjusted deposit rate has been extended. The People’s Bank of China reduces the benchmark loan interest rate and deposit interest rate to 5.6% and 2.75% per year, The traditional state-owned banks profit model and space under threat again, the most basic source of income gap narrowed will make net interest income growth fell further, leading to the main business revenue decline and reduce the net profit. It increases the income risk of the currency financial products and bond financial products which issued by state-owned banks. The promotion of interest rate liberalization to state-owned banks to deal with the interest rate risk, credit risk has brought great challenges. The growth rate of bank’s net profit and net interest margin has decreased because the appearance of internet financial, government supervision and the cost of capital. It is urgent to improve the banking profitability.The article discusses the problem summary of the interest rate liberalization process in developed regions and countries, combined with the situation that Chinese banking industry is facing the interest rate volatility risk, It suggests that the state-owned banks should actively adjust the business structure and improve their profitability. It indicates that the proportion of interest income is quiet large of the total income revenue. Therefore, interest rate liberalization will result big risk for state-owned banks. The article analyses selected factors that affect the profitability of banks and state-owned cases by multiple regression verification to five large chief state banks, and points out that state-owned banks need to conduct the innovation of bank businesses and optimization of internal structure under the impacts of the interest rate liberalization. The forward of interest rate liberalization pushes all the banks transform their profit model from fixed income types to assets management business in order to open up the new market area and profit model.