Study On The Factors Affecting Commercial Bank Net Interest Margin Under The Interest Rate Marketization Process

In 2004, China achieved the stage goal of interest rate liberalization smoothly. In 2012, the people’s Bank of China decided that cut financial institutions’ RMB benchmark deposit and lending interest rates further. This means that China already go into the process of interest rate liberalization. Although the interest rate liberalization helps improve the competition of the commercial banks and the growth of the economy, it can also have a shock on the Net interest margin(NIM) of the commercial banks. NIM(Net interest margin) is the important source of commercial banks’ profit. It can reflect its own efficiency and the transaction cost of the financial intermediaries during the resource allocation. Not only can it promote the efficiency of commercial banks, but also can increase the development of China’s financial system on the base of analyzing which factors can affect the NIM during 2004 to 2012.This paper mainly selects indicators on basis of the theoretical models proposed by Maudos and Solis(2009).On the base of the unbalanced panel data of four major state-owned commercial banks and eight joint-stock commercial banks in China from 2004 to 2012,this paper analyzes the determinants of the bank NIM through static and dynamic econometric methods. The result showed that banks’ NIM had no lagged effect which meant prior NIM took no effect on later period. The determinants of the NIM are as follows: Average Operating Cost, Intermediary Business, Management Efficiency, Risk Aversion, Default Risk and the loan scale. The most significant economic impact on NIM is determined by Average Operating Cost and Intermediary Business. Average Operating Cost and risk aversion have significant positive effect on NIM. However management efficiency have negative effect on NIM. The intermediary business,default risk and the loan scale’s effects on NIM are not significantly positive.Finally, the paper gives some policy suggestion to chinese commercial bank according to the test result. And pointed out the weakness of this paper and the research direction in the future.