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A Study on Effect of Interest Rate Fluctuation to Commercial Banks’ Performance in China

Author: JiangYan
Tutor: ZouLing
School: Jiangxi University of Finance
Course: Finance
Keywords: Commercial banks interest rate fluctuation operating performance
CLC: F832.33;F224
Type: Master's thesis
Year: 2010
Downloads: 140
Quote: 0
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Abstract


Interest rate marketization is an inevitable choice for financial operations in market economy. From a global point of view, configuration of global capital requires interest rate marketization due to impelling of economic globalization and promoting of capital movement between different countries. Interest rate, as price of capital, will assist to promote resources optimization configuration, if it could completely realize marketization. In China, commercial banks could only implement the interest rate that was made by government, without any rights of pricing for interest rate, because of interest rate regulation for a long time. Until 1990s, the disadvantages of interest rate regulation appeared, while joint-stock banks and foreign banks emerging and state-owned banks transformed their operating mechanism. To meet the economic and financial development, China started the interest rate marketization reform in 1996. After several years’ exploration, the interest rate marketization reform has been propelled steadily and got the outstanding achievement. As the reform goes to deepen, the power of market which could decide interest rate will arise day by day. However, the uncertainty which is brought by the interest rate marketization reform will affect joint-stock banks and state-owned banks, which are going through transformation from planned economy to market economy. Frequent fluctuations in interest rates not only impact operating performance of all commercial banks, but also alter customary assets-liabilities structure and interest income of commercial banks, which may increase the operating risk of commercial banks. As a result, there must be a great challenge to daily operation for commercial banks. The article basing on the implementation of interest rate marketization, using both theoretical analysis and empirical analysis, probes the relationship between interest rate fluctuation and commercial banks’operating performance of China with the model, and also find out how interest rate fluctuation work on the assets-liabilities structure of commercial banks in China.The article article is divided into five parts. Details as follow:The first part of the paper is introduction., which states the background and significance of the research. After that it is Literature Review, and introduction of the major coverage, research approach and defects of the article simply.The second part is the overview about status, including fluctuation in interest rates and commercial banks’ operating performance in China, as preparation for further research. Firstly, the description of the status of interest rate aims to introduce the degree of interest rate liberalization of all kind of financial products form the progress of interest rate marketization. Using some interest rate data from 1996, when the interest rate marketization reform began, to illustrate the frequent fluctuation of commercial banks’ deposit and loan interest rate in China. But deposit and loan interest rate of commercial banks show a tendency of rise on benchmark interest rate overall. Secondly, the introduction of commercial banks’ operating performance in China is form five aspects, which are the income source, the profit ability, the debt paying ability, the assets management ability and the sustainable growth ability, to explain the whole trends and the performances respectively.The third part intents to research the relationship between interest rate fluctuation and commercial banks’ operating performance of China. EVA is chosen as index to measure the commercial banks’ operating performance. And the benchmark interest rate of research is 90 day’ securities counter-purchase interest rate between commercial banks. Through the empirical analysis, we find there is a long-time equilibrium between interest rate and EVA of commercial banks, which is positive correlation. In other words, increasing in interest rate leads to amplify in EPA, rate of EVA. In addition, from the point of statistics, if there some change in D(r) will lead to change in D(EPA).The fourth parts analyzes the effect from interest rate fluctuation to commercial banks’ operating performance of China using both theoretical analysis and empirical analysis. The Flannery’s partial adjust model will be used in empirical analysis. And commercial banks in China will be divided into two categories according to management system in order to observe the operating performance of commercial banks with different management systems when they confront the interest rate increasing periodically.The last part gives some suggestions that are aimed to improve the abilities of handling with fluctuation in interest rates.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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