Does Interest Rate Liberalization Lead to The Narrowing of Commercial Banks’ Interest Margins?
Empirical Evidence from Nearly A Decade in China
DOI:
https://doi.org/10.54097/fbem.v9i1.8484Keywords:
Interest Margins, Interest Rate Liberalization, Commercial Bank.Abstract
Based on the background of China’s interest rate liberalization, this paper empirically investigates the impact of interest rate marketization on China’s commercial banks’ interest margins using a fixed effects model using panel data of 39 commercial banks in China for the last decade from 2013-2022. The results of the study indicate that interest rate liberalization significantly reduces the interest margins of Chinese commercial banks. In the long run, with the deepening of interest rate liberalization, the interest margins of commercial banks tend to narrow. At the end of the paper, suggestions are made in relation to the current situation of interest rate liberalization in China and the research results.
Downloads
Metrics
References
R I. Mckinnon, Money and Capital in Economic Development[M]. Washington D. C: Brookings Institution Press, 1973:115-128.
S. Edwards, Financial deepening in economic development[M]. Oxford:Oxford University Press, 1973:260.
J. Maudos and J. F. D. Guevara. “Factors Explaining the Interest Margins in the Banking Sectors of the European Union”, Journal of Banking and Finance, 2004, 28(9) : 2259-2281.
A. Birchwood, M. Brei, and D. M. Noel, Interest Margins and Bank Regulation in Central America and the Caribbean, Journal of Banking and Finance, 2017, Vol.85, 56-68.
Jiangang Peng, Shujun Wang, and Tianyu Guan, “Does Interest Rate Liberalization Narrow Interest Margins of Commercial Bank? Empirical Evidence Based on Chinese Banking Industry”, Journal of Financial Research (in Chinese), 2016, 433(7) : 48-63.
T. S. Ho, and A. Saunders, The Determinants of Bank Interest Margins: Theory and Empirical Evidence, Journal of Financial and Quantitative Analysis, 1981, Vol.16, 581-600.
L. Allen, “The Determinants of Bank Interest Margins: A Note”. Journal of Financial and Quantitative Analysis, 1988, 23(2) : 231-235.
L. Angbazo, “Commercial Bank Net Interest Margins, Default Risk, Interest rate Risk and Off-balance Sheet Banking”. Journal of Banking and Finance, 1997, 21(1) : 55-87.
Lin Jane-Raung, Chung Huimin, Hsieh Ming-Hsiang, and Wu Soushan, The Determinants of Interest Margins and Their Effect on Bank Diversification: Evidence from Asian Banks. Journal of Financial Stability, 2012, Vol. 8, No. 2: 1-11.
Liya Liu, Minghui Li, Sha Sun, and Jinqiang Yang, The relationship between Net Interest Margin and Non-interest Income for Chinese banks. Economic Research Journal (in Chinese), 2014, (7) : 110-124.
Xiang Qiu, Maturity Mismatch and Bank Interest Margin. Journal of Financial Research (in Chinese), 2015, 419(5) : 83-100.
Binghai Xin, Jiang Tao, and Xiaoyun Zhang, The Impact of Macroeconomic Uncertainty on Net Interest Margin. Journal of Yunnan Finance and Trade Institute (in Chinese), 2015, (5) : 111-123.
C. M. Buch, C. T. Koch, and M. Koetter, Should I Stay or Should I Go? Bank Productivity and Internationalization Decisions. Journal of Banking and Finance, 2014, Vol. 42, No. 1:266-282.
A. Sarr, “Financial Liberalization,Bank Market Structure and Financial Deepening - An Interest Margin Analysis”. IMF Working Papers, 2000, 00-38.
A. Saunders and L. Schumacher, “The determinants of bank interest rate margins: an international study”. Journal of International Money and Finance, 2000, 19(6) : 813-832.
E. Chirwa and M. Mlachila, “Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi”. IMF Working Papers, 2004,51(1) : 96-122.
G. López –Espinosa, A.Moreno, and F. P. D. Gracia, “Banks Net Interest Margin in the 2000s: -A Macro Accounting international perspective”. Journal of International Money and Finance, 2011, 30(6) : 1214-1233.
D. Kumar, The Impact of Interest Rate Marketization on China’ s Commercial Banks and Its Tactics. Journal of Mathematical Finance, 2017, 6 (5) : 921-929.
Working Group on Interest Rate liberalization Reform of the CBRC, Research on Interest Rate liberalization Reform and Commercial Bank Transformation. Financial Regulation Research (in Chinese), 2012, (11) : 1-12.
Guangyuan Xing, Zongxian Feng, and Aolin Leng, The Impact of Deregulation of Loan Interest Rates on Commercial Bank Profitability. Journal of Xi’an Jiaotong University (Social Sciences) (in Chinese), 2014, (6) : 51-57.
Chuang shen, Shengmin Zhao, and Ying Li, Interest Rate Liberalization, Non-interest Income and Net Interest Margin of Banks—The Different Influence Paths of Classified Non-interest Income. Statistical Research (in Chinese), 2020, (5) : 68-81.
Lifu Fu and Jian Wei, Government Regulation, Interest Rate Liberalization and Net Interest Margin. Colletced Essays on Finance and Economics (in Chinese), 2014, (7) :90-97.
Shusong Ba, Zhongwei Hua, and Yuanqian Zhu, International comparison of interest rate liberalization: path, performance and market structure. Journal of Central China Normal University (Humanities and Social Sciences) (in Chinese), 2012, Vol.51,(5) :33-46.
Shuqing Huang and Lulu Sun, Dynamic Choice of Commercial Banks’ Pricing Strategies in the Process of Deposit Rate Liberalization. Shanghai Finance (in Chinese), 2014, (5) :34-39.
Shujun Wang and Jiangang Peng, The Studies on the Measurement and Performanceof China’s Interest Rate Liberalization: Empirical Analysis Based on the Bank Credit Channel. Financial Economics Research (in Chinese), 2014, Vol.29, (6) :75-85.
J. Nguyen, “The Relationship Between Net Interest Margin and Noninterest Income Using a Sysyem Estimation Approach”. Journal of Banking and Finance, 2012, 36(9) , 2429-2437.
J. Maudos and L. Solís, The Determinants of Net Interest Income in the Mexican Banking System: An Integrated Model. Journal of Banking and Finance, 2009, Vol.33, 1920-1931.
L. Lepetit, E. Nys, P. Rous, and A. Tarazi, Bank Income Structure and Risk: An Empirical Analysis of European Banks. Journal of Banking and Finance, 2008, Vol.32, 1452-1467.
Zhenguo Han and Yajun Wang, Factors Affecting Commercial Bank Spreads Under Interest Rate Liberalization. Journal of Capital University of Economics and Business (in Chinese), 2017, Vol.19, (1) : 18-24.
S. Gerlach, W. Peng, and C. Shu, Macroeconomic conditions and banking performance in Hong Kong SAR: A panel data study. BIS Papers, 2005, 22(2), 481–497.
A. E. Omankhanlen, N. Ilori, A. A. Isibor, and L. U. Okoye, Monetary policies and the achievement of bank profit objectives. Journal of Central Banking Theory and Practice, 2021, 2(1), 201-220.
Downloads
Published
How to Cite
Issue
Section
