Research On Impacts Of Interest Rate Liberalization On The Risk Of Listed Banks In China

Interest rate liberalization is one of the most important parts in China's financial reform.In October 2015,the People's Bank of China canceled the deposit rate floating ceiling of the commercial Banks.This can be seen as the end of the interest rate control.Since then,the interest rate liberalization in China has entered a new transition stage.During the reform of interest rate liberalization,especially the acceleration of reform stage,China's commercial Banks are faced with the risk of profit decline and level rising pressure.Therefore,it is worth to discuss whether there is a possible relationship between the interest rate liberalization and the risk of commercial Banks.Considering the commercial Banks play an important role in the healthy development of the national economy,the research on the impact of interest rate liberalization on the risk of commercial Banks would be very realistic.Before the empirical research,we first summarize the influence mechanism of interest rate liberalization to commercial banks and show the process with a figure.The empirical research is based on the panel data which is composed of the data of 13 Listed Banks in China from 2006-2015.Firstly,we choose the net interest margin as the proxy variable of the interest rate liberalization in China and select the non-performing loan ratio,interest rate risk sensitivity index,the cumulative foreign exchange exposure rate and the deposit-loan ratio as proxy variable of bank's risk,which is the dependent variable in our model.We also choose the characteristic variables of the banks,concentration ratio,economic growth rate and the 2008 financial crisis as control variables.Secondly,we build panel data model and explore the general impacts of interest rate liberalization on the risk of Listed Banks in China.Finally,on the basis of original panel data model,we make a further analysis by adding the cross term of interest rate liberalization and dummy variable which represents the bank type.In this way,we can explore whether there are differences between the impacts of interest rate liberalization on the risk of State-owned Banks and Joint-stock Banks.Based on the above empirical results,we found: Firstly,the interest rate liberalization can significantly increase the credit risk,interest rate risk and liquidity risk level of Listed Banks in our country,but it has no significant effect on the exchange rate risk.Secondly,the impact of interest rate liberalization on credit risk and liquidity risk of Listed Banks are obviously heterogeneous on different types of Banks.Although the interest rate liberalization can significantly improve the credit risk and liquidity risk levels of the State-owned Banks and Joint-stock Banks,its influence on State-owned Banks is much deeper than Joint-stock Banks;The interest rate liberalization can significantly improve the interest rate risk level of the State-owned Banks and Joint-stock Banks,but there was no significant difference on the influence degree of interest rate risk on the different types of banks.Finally,the growth of bank assets can effectively alleviate the liquidity risk,the banks with larger asset size can more effectively resolve the liquidity risk;The swift growth of macro economy can improve the liquidity risk of Listed Banks.The decrease of market centralized degree can ease the credit risk and the interest rate risk of Listed Banks to a certain extent,but at the same time significantly intensify the liquidity risk.The emergence of the financial crisis raised the attention of Chinese banking institutions and their regulators to control the bank's foreign exchange risk and the credit risk,but at the same time,the crisis increased the liquidity risk of the Listed Banks to a certain extent.Based on the above conclusions,we put forward some suggestions to the central bank,banking regulators and listed bank.