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Impact of the Lending Rates Liberalization to the Commercial Bank’s Profitability Based on the Sensitivity Stress-testing of China’s Listed Commercial Banks

Author: YangMei
Tutor: JieChuanBo
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: liberalization of lending rates commercial banks’ profitability sensitivity stress-testing non-interest income
CLC: F832.33
Type: Master's thesis
Year: 2013
Downloads: 997
Quote: 0
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Abstract


Interest rate liberalization is an interest rate control method, fully determined by the market, which has a decisive role in the process of interest rate regulation. The government’s macro regulation and control will appear when the market interest rate regulation becomes invalid. Interest rate liberalization is a part of financial liberalization, which makes the market play an important role in optimizing resource distribution. However, the financial liberalization reform should be carried out step by step. Otherwise, financial liberalization could lead to financial catastrophe, such as the financial crisis in South America caused by the violent financial liberalization reform. Interest rate liberalization is the final goal of financial liberalization.Since1996, China started the interest rate liberalization. To date, only RMB deposit and lending rates are still under the supervision of the government. According to the "12th Five-Year Plan", the government is likely to cancel the minimum lending rate in the next five years. However, cancelling the minimum lending rate could lead to a sharp drop in net interest income. Furthermore, the sharp drop in net interest income would threaten the security of the bank, because net interest income is the main source of profit for China’s commercial banks.The content of this thesis includes the analysis of the loan interest rate liberalization’s affection on the bank profit in quantitative methods. The specific quantitative method is sensitivity stress-testing. Select the representative examples from China’s listed commercial banks as the test objects.In conclusion, it is better to adopt a progressive reform for the process of cancelling the minimum lending rate. Generally speaking, the impact should be in an acceptable range of the bank, and non-interest income can ease the loss of profit.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial organizations, banks > Commercial banks ( specialized banks )
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