An Analysis Of The Impact Of Interest Rate Marketization Of China’s Commercial Bank Performance

Interest rate marketization refers to relax or cancel policy intervention of interest rates from the government and monetary authorities. That makes the decision made by the market players themselves, but the monetary authorities can only control monetary instruments in order to affect interest rates. Interest rate reform is an important policy of the financial sector in recent years, especially the liberalization of financial institutions on lending rate since July 2013, and on deposit rates in October 2015. With the pace of interest rate marketization reform gradually accelerated, the impact on the national economy and financial markets are gradually expanding. Frequent fluctuations of the market interest rate, the market competition intensifies, financial disintermediation and Internet financial reform prompt China’s commercial banks change their traditional business model and operation model. The effects of reform and commercial banks’ strategies will be reflected through the bank’s performance, therefore this paper will try to study the influence of Interest rate marketization on China’s commercial banks’ performance, so that to provide ideas for commercial banks to cope with the reform better.Related theories of this paper include two parts, one is associated with the interest rate marketization reform which consist of specific connotation interest rate market, several western interest rate decision theories, the financial repression and financial deepening theory. Financial repression theory considers that developing countries tend to have a market interest rate policy intervention which will lead to the deterioration of market resources structures allocation. Financial deepening requires monetary authorities to relax the regulations of market economy, cancel interest rate controls, to restore its market regulation. The other is the theory of commercial bank achievements, including the evolution of the connotation and evaluation of bank performance; also describe the details of EVA performance evaluation system and its advantages.This paper reviews the process of marketization of interest rates in US, Japan and South Korea, it concludes that although the process of reform in each country is different, the impact of financial markets and commercial banks is consideration. Financial market appears on the market loan growth, interest rates fluctuate and loan spreads narrowed; the commercial banks respond to financial innovation actively, develop business and competitive advantages, focus on risk control, improve management efficiency in common. These provide a reference and ideas for our country.China’s reform learned experiences from other countries, in accordance with a progressive manner. The reform may increase market interest rate fluctuations, change financial market conditions and structure, intensified competition, the impact on bank spreads, prompting banks to adjust their business structure to innovate. These pathways conduct through the market are likely to affect the performance of our commercial banks. The paper selected variables to join an empirical model from several possible pathways so that the impact of interest rate market for China’s commercial banks can be studied comprehensively.Empirical research of this paper used the system GMM model according to 30 commercial banks’ data from year 2007 to 2014, in order to analysis the impact of interest rate marketization of China’s commercial bank performance. The empirical results show that:(1) the interest rate marketization can improve the performance of our commercial banks;(2) the performance of commercial banks show a slight counter-cyclical characteristics;(3) China’s banking industry still exists trade barriers; the industry concentration has a positive effect to banks’ performance;(4) the NIM is beneficial to bank’s performance, the higher efficiency of cost control, the better performance of banks.Finally, combine with the status of China’s commercial banks, the paper made suggestions from two aspects: establishing the development strategy and improving their management capabilities. According to the large, medium and small banks’ characteristics and advantages, banks can be developed as universal banks, specialized banks and characteristics banks from strategies; on the aspect of the bank’s management capabilities, banks can improve achievement from developing management system, assets and liabilities management; credit risk management, and operational cost management.The innovation of this paper showed:(1) Previous analysis mainly focus on theoretical one, the empirical analysis were mostly relied on the least squares method and static panel model, thus this paper would use S-GMM model in order to obtain more robust results.(2) Previous studies on the interest rate marketization do not clearly define a variable to measure the extent of reform; this article adds more variables in order to obtain more comprehensive analysis.