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

The EmpiricalStudy on Influencing Factors of Net Interest Margin of Banks in Process of Interest Rate Liberation

Author LiuLei
Tutor DingNing
School Dongbei University of Finance
Course Finance
Keywords InterestRateLiberalization Net Interest Margin Dealership Model
CLC F832.33
Type Master's thesis
Year 2013
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Under the background of the traditional interest rate controls, the net interest margin of banks is mainly decided by the Interest Spread. Along with the advancement of market-based reform of interest rates, interest spread regulation gradually relaxing, pricing interval of deposit and loan of banks gradually expanding, these changes will affect banking net interest margin, lead to weak the protective function of interest spread for net interest margin. So the banks will face greater competitive pressure and banking profitability is under stress. Following that, a number of important issues appear. How to face various challenges in the process of market-based reform of interest rates and develop effective independent pricing power are becoming important problems for banking industry. Facing voice of cancelling interest spread as soon as possible and the pressure of banking transformation, market-based interest rate reform is how to promote. Therefore it is meaning to study on the influencing factors of the Net Interest Margin of Banks in the process of interestrateliberalization.First,the level of banking interest margins is a key indicator of the efficiency of banking industry, although bankingbusiness has become diversification, net interest margin is still large proportion in banking income, so studying on the crucial factors of the net interest margin helps banks to strengthen management, increase efficiency and improve the level of profit. Second, net interest margin theory model is researched under the condition of interest rate liberalization completely in foreign, however, China’s banking sector comes from the planned economy system and although China’s banking industry has a certain interest rate pricing autonomy, it hasn’t full interest rate pricing autonomy, so adding interest spread and other factors into traditional market-maker model correspond to the essence of China’s net interest margin influencing factor combined and in accordance with the present situation of the market-based reform of interest rates. Third, with the advancement of market-based reform of interest rates in China, the influence of interest spread on net interest margin of banking industry must be identified in order to remove the direct control of depositandloaninterestrate, in addition, that contributes to reasonably determine bank spreads within the scope of the autonomy for banking industry. Fourth, that is beneficial to provide theoretical basis for the important measures in the process of the market-oriented interest rate reform, further evaluate the effects of progressive market-oriented interest rate reform in China, expand monetary policy tools, correctly guide the banking industry and further push forward the interestrateliberalization. At last, by studying the changes of the influencing factors of the net interest margin in the process of interestrateliberalization, that helps to speed up the banking business model transformation, improve the ability of interestratepricing and raise the level of asset and liability management, further promote the reform of the banking sector.On the basis of the improved model of Ho and Saunders, combining our actual condition, this paper further improves and corrects the model and joins the spreads, capital adequacy, money supply, operating conditions of banks and other variable. From three aspects of the banking industry itself, medium industry, macro economic environment, taking advantage of the data of14listed Banks from1997to2012, this paper uses panel data model and time phase method to empirically inspect the influencing factors of banking interest margins and reveals the results of market-oriented interest rate reform and the affections of market-oriented interest rate reform on banking interest rate pricing behavior. The results show that, in addition to the traditional interest spread, the influencing factors of net interest margin in China’s banking industry are gradually increasing. Before and after the reform, the influence of interest spread is waning, but the impacts of operating (?) bank scale, risk level and other factors of banking industry itself are increasing. There is a certain improvement of our competitive banking market structure, but interest rate liberalization reform remains to be further forward. Based on the findings above, this paper makes some reasonable suggestions from the perspective of banking industry itself, policy and regulation.

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