Research On The Market-oriented Transformation Of China’s Commercial Bank Profit Model

The extent of the interest rate marketization is an important indicator to measure a country’s level of financial development and financial deepening degree. Interest marketization narrows net interest margin between bank deposit and lending rates, shrinks the interest income that s the main part of the profits, results commercial banks under challenge and its profit model under attack. Market-oriented reform of interest rate is substantially completed at this stage in China and the commercial banks need profit model transformation urgently. Based on the analysis of existing problems and challenges in China’s commercial banks’ profit model, the purpose of this paper is to identify the influencing factors of China’s commercial bank profit model, provide practical and theoretical basis for development road of the market-oriented transformation, stabilization and profit growth of commercial banks’business.This paper defines the concept of commercial bank profit model firstly, after which analyzes the theory and literature review relevant to commercial bank profit model transformation and transitional process of commercial bank profit models in the United States, Germany and Hong Kong, and summarizes and learns from the practices in other countries that is representative ultimately. It deduces the multi-product net interest model based on the Ho-Saunders trader leadership model and build an empirical model, selects 18 commercial banks in China at 2007-2014 as samples, and then makes an empirical analysis on the relationship between net interest margin and the various factors that affect it after a preliminary analysis, using static panel data, based on the multi-product net interest margin model. The empirical results show that, interest-led profit model will be affected by benchmark interest rate margin, which verify that the drawbacks of the existing profit model of China’s commercial banks at the present stage, namely the dominant source of profit coming from the interest income. Due to the impact of interest rate marketization, benchmark spread tightening will make this dividend policy no longer exist. The initial implementation of Interest marketization will make this policy bonus no longer exist. The empirical results also show that, China’s commercial bank interest-led profit model is influenced by opportunity cost of reserves, credit risk, operating costs and other factors. The innovation is the introduction of the long tail theory as theoretical basis for commercial banks’retail banking and intermediary business, as well as the introduction of multi-product net interest margin model to empirically analyze commercial banks net interest margin factors, providing empirical evidence for the transformation of commercial bank profit model.Studies have shown that commercial banks should recognize the difficulties interest-led profit model would face, and actively explore diversified revenue model, to develop retail banking, intermediary business and other innovative services, improve the comprehensiveness of services to enhance its ability to resist risks. Commercial banks should also develop professional and distinctive development strategies combined with characteristics such as its own resource advantage, speed up the integration to improve operational efficiency, and enhance overall competitiveness, as soon as possible to adapt to the interest rate market-oriented reform and better respond to integrated challenges from the market environment.