A Study On The Impact Of Interest Rate Marketization On The Vulnerability Of Agricultural And Commercial Banks In China

Since the 1990s,China has started to reform the interest rate market and has achieved remarkable results in practice,which is an inevitable choice for financial development in China’s market economy environment.Agricultural and commercial banks,the main providers of financial resources to China’s agricultural and rural sectors primarily support agriculture,rural development,and small and micro businesses.The interest rate market reform implemented in China has both advantages and disadvantages for the development of agricultural and commercial banks.If used properly,it can effectively promote their own business development and better prevent business risks.If not properly applied,it will have a serious impact on the overall profit of agricultural and commercial banks and even lead to bankruptcy.Agricultural and commercial banks have inherent deficiencies in assets,capital and risk control capabilities,and are vulnerable to interest rate fluctuations in the interest rate market reform.It is crucial to conduct a thorough analysis of how the marketization of interest rates can affect the vulnerability of agricultural and commercial banks.This study is vital for the growth of these banks in China as well as for maintaining stability in the country’s rural economic system.This paper is based on the data of 102 rural commercial banks from 2013-2021,as well as data from the World Bank database.The vulnerability level of China’s agricultural and commercial banks and the level of interest rate marketization are measured separately by factor analysis.The results of the measures are modeled and a panel data model is used to conduct a comprehensive analysis of the impact of interest rate marketization on the vulnerability of agricultural commercial banks.The main empirical results of this paper are as follows:(1)The degree of interest rate marketization is positively and significantly related to the vulnerability level of rural commercial banks.Specifically,for every 1 unit increase in the interest rate marketization index,the value of the proxy indicator of bank vulnerability level will decrease by about 46.24 units,which means that the level of bank vulnerability increases by about 46.24 units.(2)The total assets of agribanks will have a significant positive relationship on their vulnerability level.(3)An increase in the return on net assets will reduce the vulnerability level of agribanks.In view of the empirical results,this paper makes the following suggestions on how to reduce the vulnerability level of agricultural and commercial banks in the context of interest rate marketization: first,introduce differentiated deposit rates;second,carry out asset securitization business;third,develop cross-border business;and fourth,promote inclusive financial services.