Study on the Impact of Interest Rate Marketisation on the Profitability of Chinese Commercial Banks

Abstract

Interest rates play a role in regulating the allocation of resources in the financial market and can be used as the price of money. In order to allow the market to play a fundamental role in resource allocation, the reform of the socialist market economy system has been gradually launched in China since the 1990s. From the establishment of the interbank lending market in 1996 to the reform of the interest rate quotation mechanism in the loan market in 2019, the marketisation of interest rates has played an important role in the independent allocation of resources in the financial market, and is getting closer and closer to achieving the ultimate goal of interest rate marketisation. However, as the pricing power is controlled by financial institutions, the competition among the banking sector has become more and more intense. According to the financial reports of listed banks, the operating situation of the banking industry is very tough, and the return on assets has been declining, leading to the transformation of major banks to achieve greater profitability. In general, exploring the impact of interest rate marketisation on the profitability of commercial banks helps to analyse the current situation of bank operations, improve the ability to cope with risks by finding new profit models, and occupy a favourable position in the competition in the financial market.This paper takes the impact of interest rate marketisation on the profitability of Chinese commercial banks as the object of research, by finding relevant literature, starting from relevant theories, and using internal and external factors to study its impact mechanism; and according to the reform history of China's interest rate marketisation, it analyses the trend of changes in the indexes of Chinese commercial banks to determine the impact of interest rate marketisation on the profitability of commercial banks; it also adopts the multivariate linear regression model, according to the regression analysis found that the interest rate marketisation has a strong impact on the profitability of commercial banks, but the change of the bank's income structure does not significantly improve the profitability; finally, the following conclusions are drawn: (1) the basis for the realisation of the interest rate marketisation is to improve the pricing system and open the interest rate conduction channel; (2) by optimising the income structure and improving the operational efficiency, the profitability of the bank can be improved; (3) by reasonable response to interest rate fluctuation risk and improving risk management ability, it can gain an advantage in the fierce market competition.