An Experimental Research On Relationship Of Liquidity Risk, Credit Risk And Profitability In Commercial Banks

Commercial banks, as one of the three pillars of the financial sector, although it is the most senior and powerful financial institutions in the new era, there are still some typical problems of their own. In addition to a very small number of state-owned banks, it started late in the development process of Chinese commercial banks, and many other commercial banks are the product of reform and opening up after. During its short development process, because of the management system mature, the ability to control as well as the other issues, there are inevitably creating serious consequences. With china’s entering WTO, foreign banks have entered Chinese financial market with their scale superiority. It is an urgent task for domestic banking to develop network bank. Bedsides, with the promoting of the commercial bank share-equity reformation, it puts forward the major challenge to the development of China’s banking industry. In addition to facing the impact of foreign banks, China’s commercial banks should also facing a "going out" strategy; in addition to the face of financial market reforms, these banks also need to deal with the impact of the internet financial reform. In this background, as for our country commercial banks, how to allocate assets and liabilities efficiently, to realize the steady growth in profitability as well as to occupy a place in the global financial industry will have an important impact on financial industry and even the whole of China’s the real economy.Many studies and many cases have shown that the liquidity risk of commercial banks is not only related to the quality of its assets, but also closely related to its liabilities:not only relating to matters of its balance sheet, but also referring to the matters of off-balance sheet. In the meantime, deposit and loan spreads is still a one of the main sources of commercial bank profitability. Thus, the quality of loans and non-performing loan ratio is still an important indicator affecting the profitability. Therefore, how controlling the liquidity risk and credit risk strictly to improve the profitability of commercial banks is an important issue in the new age.On the basis of basic status Chinese commercial banks are facing, this paper takes the 2007—2014,8-years report data of 16 listed commercial banks as the main object of study, and empirically analyzes the relationship between liquidity risk and credit risk Chinese commercial bank as well as the two risk impact on profitability. Results of the correlation analysis showed that there is no statistically significant correlation between liquidity risk and credit risk. Regression analysis showed that the impact on the profitability of the liquidity risk is not significant, and the credit risk will have a significant positive effect on profitability. It is noteworthy that, in the case of liquidity risk and credit risk coexistence, interaction will have a positive significant effect on the profitability. Moreover, the credit risk shows significantly negative effects on the profitability, meanwhile, liquidity risk shows a significant negative correlation with profitability. As a result, in order to guarantee steady growth in bank’s profitability, the study suggests that managers should management liquidity risk and credit risk comprehensively. On the one hand, strengthening the identification and control of non-performing loans to prevent the accumulation of credit risk; on the other hand, commercial banks should also expand the size of loans reasonably under the condition of sufficient liquidity.