Analysis On Non Interest Business Impact On The Profitability And Risk Of Commercial Banks In China

On July 20th,2013, People’s bank of China opens financial institutions rate control in an all-round way, it means that interest rate liberalization takes a significant step in China. With the advantage of liberalization of interest rate, and a large number of the foreign banks are entering in China, there are many factors intensify the banking industry competition. In fact, a variety of factors make interest rate spreads cut, and the commercial Banks have gradually integrated management strategy. On the one hand, they set up the financial holding company, and form a model of development:mixed operation and business separation. On the other hand, the commercial banks expand sources of income through the business innovation and product innovation. The business focuses gradually shift to non-interest business direction, but it is still a problem that non-interest business for commercial banks to the steady development. So studying the effect of non-interest business has an important significance.This paper is in the perspective of financial innovation, beginning with the concept of financial innovation and non-interest business. It also introduces the scope and characteristics of non-interest business in our country. It analyzes why commercial banks develop non-interest business in our country from two aspects of internal and external factors. In addition to these, this paper introduces the main businesses of commercial bank innovation. On the basis of financial innovation theory, and the theory of portfolio, utilizes the knowledge of economics to analyze the significance of non-interest business. It also makes the theory explanation that how non-interest business impact on the risk of commercial bank.In the empirical research part, this article selects 14 listed commercial banks in China from 2008 to 2012 as the research object, including the four state-owned commercial banks and 10 joint-stock commercial banks. It analyzes the internal and external factors that affect commercial bank’s profitability and risk, and set up bank bankruptcy risk model. On the basis of the theoretical model, it establishes panel econometric models to study the relationship between non-interest business and profitability as well as commercial bank’s risk. It puts return on assets (ROA), Z value as the dependent variable, and takes non-interest business income accounted for the proportion of operating income as the independent variables. In the regression model, it joined growth rate of assets, the proportion of assets to shareholders’ equity, growth rate of gross domestic product (GDP) as control variables. In order to further study the relationship between non-interest business and the commercial bank’s profitability and risk, it also subdivide non-interest business income for net earnings of the fees and commissions, net income of trading accounts.In this paper, main conclusions are as follows:(1)Improve non-interest business income can significantly increase the profitability of commercial banks, especially the net income of fees and commissions. But net income of trading accounts has no significant negative relationship with the profitability of commercial bank. Therefore, commercial bank can make cross-selling in deposit and lending business, develop the innovative financial products, and need to improve the professionalism of investment, make non-interest business play a positive role to the profitability of commercial bank.(2) Compared to the average company, bank has the characteristics of high debt ratio. So its risk is bigger. Non-interest business can not only improve the profitability of banks and dispersing the risk of banks. It is also conducive to the sustainable development of commercial banks.