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Analysis on the Relationship between Non-interest Income of Commercial Banks and Performance in China

Author: WangShanShan
Tutor: BianZhiCun
School: Nanjing University of Finance and Economics
Course: Finance
Keywords: Non-interest Income Fees and Commissions Performance of CommercialBank
CLC: F832.2
Type: Master's thesis
Year: 2012
Downloads: 110
Quote: 1
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Abstract


In2008, People’s Bank of China adopted a relatively loose monetary policy andreleased the control of credit scale moderately to prevent economic decline whenconfronting Financial Crisis. However, largely increased credit scale allows the risk ofincreasing NPL(non-performing loan) to germinate, which will challenge mostly tothe credit business focused commercial bank. At the same time, there are some newbank’s capital requirements in Basel III and China’s12thFive-Year Plan, and underthese double pressures, commercial bank begins to pay attention to the business ofnon-interest incomes. So, it is worthy of studying whether the non-interest incomescould improve the performance of the commercial bank or not.In this article, we analyze the reasons to develop non-interest income businessfrom a theoretical angle, and development environment of non-interest business fromthree aspects such as culture, law and market supply and demand environments. Wealso introduce the status quo of the non-interest income of Chinese commercial banks(four large commercial banks; ten small and medium sized commercial banks) duringthe period of2000to2010. The results show that the proportion of non-interestincome in the revenue has been remained relatively low in China but have developedfurther. We can see that fees and commissions are the main components ofnon-interest income. Meanwhile, the business of agency, clearing and settlementbusiness, bank card business, consulting services are the most important componentsof fees and commissions.In the empirical analysis part,based on a panel data of fourteen commercialbanks in China for the period of2000-2010, this paper studies the relationshipbetween non-interest income and bank’s performance by using regression analysis, inwhich we select the ROA as a dependent variable and the non-interest income tooperation income ratio as a independent variable. In the same time, we add capitaladequacy ratio(CAR)and gross domestic product(GDP)as control variables in thisregression. We also research the impact of non-interest income on bank’s performanceby subdividing the non-interest income to fees and commissions and other businessincomes. The regression results indicate that there is no significant negativecorrelation between non-interest income and ROA; significant positive correlationbetween fees and commissions and ROA; significant negative correlation betweenother business incomes and ROA. This paper explains the reasons of regression results from obstacles of regulations、aspects of operation fees and income fluctuation.Finally, some suggestions are given to Chinese commercial banks on promoting thedevelopment of non-interest income business such as break through obstacles ofregulations; raise the attention of non-interest business; diversification of products;improving the qualities of bank’ s employees.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Banking system and business
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