The Research On The Factors Which Affect The Net Interest Margins Of Commercial Banks In China

The net interest margin is a major part of profit of commercial banks. It is regarded as an important index of measuring the efficiency of banks. But the high level of interest margin means high social cost and inefficient operations of financial intermediation. Net interest income has significant influence on the operating outcome as a measure of condition indicators both in the developed countries where there exists interest rate liberalization and in the emerging countries like China which are in the process of interest rate liberalization reform. Therefore, the study of factors which affect the net interest margin and the mechanism for China’s commercial banks has great theoretical and practical significance in terms of active respond to the increasingly fierce market competition in domestic and abroad areas and the correct guidance of the development of banking by the related regulatory bodiesWith the deepening of market-oriented reform of interest rates, the net interest margin of banking is influenced by more complicated factors compared to the previous ones. This paper divides the main factors into three types which are named risk, management and scale on the basis of Ho-Saunders model and uses quarterly panel data of Chinese listed banks between 2007 and 2013 to do empirical analysis about the influential factors of net interest margin.Contents for researching are listed in the following aiming at the purpose of this research:The first chapter is an introduction. This part includes the descriptions of the background and significance of the study, research frameworks, data sources and technology roadmap, as well as the possible drawbacks and innovations.The second chapter is a literature review and theoretical basis. This part mainly contains the comparison of the factors of net interest margin of foreign countries and China, and points out the shortcomings of the existing researches and how to fix them. This part clarifies the concept of net interest margin and the reasonable level of net interest margin is going to be discussed. The related theoretical models of the factors of net interest margin are introduced as a series of formulas under some postulated conditions.The third chapter covers the model set, variable selection and descriptive statistical analysis. First, making some extension and improvement to the Ho-Saunders model according to the theoretical model deriving from the second chapter, combined with China’s realistic situations. Then, variables are selected and descriptive analysis is attached to the variables. In the process of descriptive statistical analysis, the main discussions are divided into two parts:First, one year descriptive statistical analysis of listed banks in general; Second, descriptive analysis of the samples of various types of commercial banks.The fourth chapter is an empirical analysis of the factors affecting the net interest margins of commercial banks in our country, a core part of the article. The first step is to do some instructions of the applied econometric models and testing methods. Next, explaining how to select suitable panel data model for empirical analysis of this paper, followed by the generally empirical analysis of the listed banks and the descriptions of the quarterly panel data of three types of banks. Finally, primary conclusions are drawn.The fifth chapter talks about the main conclusions and the advices for the government. Summarizing the analysis above, principal conclusions are listed as following:(1) Risk premium affects the net interest margin significantly; (2) Large banks are different from small and medium sized banks in terms of the business factors which have impacts on the net interest margin; (3) the factors related with scale have a negative impact on the net interest margin. When wrapping up the conclusions, this paper discusses pertinent advice for policies about how to improve the efficiencies of the commercial banks and expanding social welfare at the same time, coupled with the actual circumstances of China.