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The Effect Research of Non-Interest Income and Its Components on the Performance of Listed Commercial Banks in China

Author: WangJuan
Tutor: ZhangQiaoYun
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: performance of commercial banks the structure of the non-interestincome panel data
CLC: F832.33
Type: Master's thesis
Year: 2013
Downloads: 192
Quote: 0
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Abstract


China’s commercial banks still rely heavily on net interest income caused by deposit and loan spreads while non-interest income become as an important source of operating income in international mainstream commercial banks. Due to institutional reasons, their sense of developing non-interest business is not strong. In recent years, with speeding of interest rate reform, accelerating of financial disintermediation phenomena, the strengthening of capital constraints and increasing intra-industry competition, traditional interest income business of China’s commercial banks faced with severe challenges. Forced by the pressure of spreads narrowing, commercial banks have taken measures to adjust the income structure and vigorously develop the non-interest income business. However, it is worthy of studying whether the non-interest incomes could improve the performance of the commercial bank or not. The research about the relationship between non-interest income and bank performance is more mature in western countries. In recent years, more Chinese scholars began to study the relationship between non-interest income and bank performance, but they has not yet come to an unanimous conclusions, and few scholars studied the effect of the non-interest income structure on bank performance. This paper is about the relationship between non-interest income structure and bank performance based the former research. This paper is divided into seven parts.The first part is preface. On this part, the paper mainly says the research background, significance of the topic, ideas and structures of the paper, and the advantages of the paper. The main research method is comparative analysis and empirical analysis. Firstly, analyze the non-interest income development situation of state-controlled banks, national joint-stock banks and listed city commercial banks. Then it studies the effect of the non-interest income and its components on bank performance, with the ROE as the explanatory variables.The second part is to summarize the relevant theory and literature. This paper introduces the theoretical basis of non-interest income and intrinsic motivation from the perspective of financial innovation, economies of scope, diversification, and sort out the domestic and international research literature. It summarized the foreign literature from two angles, the positive and negative impacts of non-interest income on bank performance. The study of domestic banking started late, and there is no unified point of view. So this paper summary domestic literature from the angles of the qualitative analysis and quantitative analysis.The third part is non-interest income overview. Firstly, based on previous studies, cleared the definition and classification of non-interest income of commercial banks including fee and commission net income, Investment gains and losses, foreign exchange gains and losses, gains and losses from the changes in fair values and other business income of five parts. Through the compare with intermediate business income and off-balance sheet business income, clarify the scope of them. At last, this paper explains non-interest income characteristics, non-interest income and its components volatility, the correlation between non-interest income and net interest income. The Conclusion is the volatility of the non-interest income growth rate is greater than the net interest income. Non-interest income, net fee and commission income and net interest income is a positive correlation coefficient. Investment gains and losses, foreign exchange gains and losses, gains and losses from the changes in fair values and net interest income correlation coefficient is negative. Therefore, banks should make reasonable arrangements revenue structure because non-interest income may not be able to bring the dispersion of bank risk.The fourth part is about non-interest income development background and current situation. Firstly, explain the background of non-interest income development from four aspects of speeding of interest rate reform, consolidated operating deepening, accelerating of financial disintermediation phenomena, financial regulatory pressure. Then comparative analysis of the development status of the state-controlled banks, national joint-stock banks, listed city commercial banks about the proportion of non-interest income, non-interest income component and net fee and commission income composition. The main conclusion is that the proportion of non-interest income is still low despite the non-interest income increased rapidly. So net interest income is still the main income of the’banking sector in China. Major part of the non-interest income is net fee and commission income, The remaining non-interest income proportion is low, fee and commission income structure from different bank is very different.The fifth part is the empirical research. In this part, it selects the financial quarterly data of14listed commercial banks during the period of2007to2012as the research sample. This paper studies the effect of the non-interest income and its components on bank performance by constructing a panel data model and regression analysis. Firstly, The sample is divided into three groups which are state-controlled banks, national joint-stock banks, listed city commercial banks. Then, we study the effect of the non-interest income on ROE of banks with the logarithm of the assets, loan size and a the logarithm of GDP s control variables. The regression results are that all of the three sample groups of non-interest income coefficient is positive, but the results are not significant. Lastly, we study the relationship between the structure of the non-interest income and bank performance. The regression results are significant positive correlation betweennet fee and commission income and performance of state-controlled banks and other business income is significantly positively correlated with performance of national joint-stock banks and listed city commercial. This paper interprets the results to prepare for the next chapter.The sixth part is for the relevant policy recommendations. Firstly, this paper makes recommendations accordingly for the ratio of non-interest income, non-interest income structure and net fee and commission income structure. The state-controlled banks should continue to walk the road of comprehensive operations with the advantages of scale. National joint-stock banks should introduce strategic partners in order to increase the proportion of non-interest income. Listed city commercial banks should cross-sell to increase the proportion of non-interest income. The state-controlled banks should continue to develop fee and commission income, strengthen investment income risk control and seize the opportunity of the internationalization of the RMB to expand foreign exchange gains. National joint-stock banks and listed city commercial should continue to play in the business of investment income advantage, taking a cautious approach to expanding foreign exchange gains. National Joint-stock banks can further expand other business income by way of cooperation with other financial institutions.This part elaborates recommendations to optimize the structure of fee and commission income from four aspects of Increase wealth management revenue, optimization of the balance sheet, cash management services and increase asset custody business innovation, strengthen the construction of electronic banking. Final recommendations is a differentiated regulatory for different banks.The seventh part is summary and outlook. This part summarizes the conclusions, pointed out that the lack of this article and directions for future research. Future scholars can expand the sample and study the effect of non-interest income on performance of city commercial banks, rural commercial banks, foreign commercial banks, or study the effect of net fee and commission structure on bank performance. In addition, future scholar can study the relationship between security, liquidity of banks and non-interest income.The innovation of this paper is that non-interest income is divided into fee and commission net income, Investment gains and losses, foreign exchange gains and losses, gains and losses from the changes in fair values and other business income. And this paper study the relationship between non-interest income structure and different banks. In this paper, the banks were classified research, Therefore, the policy recommendations are more practical. It selects the financial quarterly data of14listed commercial banks during the period of2007to2012as the research sample. This makes statistical standards more unified, sample size even bigger. In addition, using panel data model makes the conclusions more accurate.The shortage of this paper is that the sample included only three city commercial banks because I can’t get the complete data of other city commercial banks. The empirical results can’t fully reflect the situation of the city commercial banks. In addition, this paper does not analyze the impact of non-interest income and its components on the bank’s risk due to limited space.

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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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