1、The impact of rate liberalization in China on commercial banksAbstract： Among over 20 years reformation， enterprises and consumers obtain a certain degree of financial option and the deposit and lend rate of commercial banks do changed. Literally， the profitability of commercial banks depends on the
2、 net interest margin. Therefore， the rate liberalization affects their profitability. This paper explores three kinds of banks： four state-owned commercial banks， joint-equity commercial banks and lifting city commercial banks. By study their financial statements among the latest ten years to analyz
3、e the influence of interest liberalization. Key words： commercial banks profitability； rate liberalization I. The background and significance of this paper China has started rate liberalization since 1993. However， the breakthrough happened in 1996 when interbank lending rate was decided by market.
4、Then the rate of national debt and financial bonds are realized marketlization in droves. Furthermore， the central bank had deregulated loan interest rate since 20th July， 2013. Also， in March 2014， the central bank governor Zhou Xiaochuan has announced that the deposit rate liberalization probably
5、realizes in one or two years. Considering its far-reaching impact， this reform has been attracted a huge amount of concern. Based on international experience， the rate liberalization would influence commercial banks， enterprise investment， family deposit， consuming behavior， international capital fl
6、ow and so on. This paper will focus on the profitability and risk the commercial banks have experienced. II. The research thought and data This paper explores three kinds of banks： four state-owned commercial banks， joint-equity commercial banks and lifting city commercial banks. The return on total
7、 assets （ROA） is used to represent the profitability of commercial banks. Besides， the net interest margin has been applied to reflect the influence of rate liberalization. By testing the correlation between ROA and interest margin， we analyze the impact on profitability by rate liberalization. By a
8、nalyzing the latest ten years data of 12 banks， relevant conclusion will be draw at each part and the conclusion and suggestions will be given at last. Moreover， the ROA data comes from the annual reports of each banks and the interest is discovered in central banks website. III. The influence of ra
9、te liberalization on profitability of commercial banks i. State-owned commercial banks Firstly， for the four state-owned commercial banks own the advantage of a large scale of capital， a good deal of outlets， a good base of consumers and well-known reputation， the influence by rate liberalization am
10、ong three kind banks will be minimal， especially when the financial disintermediation is not clear. TABLE 1 the net interest margin TABLE2： the ROA of four state-owned commercial banks and its coefficient with interest margin The table 1 shows that the net interest margin keeps decreasing. And table
11、 2 shows that the relationship between the margin and ROA is negative， which indicates that though the rate liberalization reduce the interest margin， the profitability of four state-owned banks are still stable and even rise slightly. ii. Joint-equity commercial banks As for the joint-equity commer
12、cial banks， the impacts they suffer is not that big as well. For they overwhelmingly occupy large proportion in real economy， the first choice for people to financing is still banks. TABLE 3： ROA of five joint-equity commercial banks and its coefficient with interest margin The impact of spread of i
13、nterest on these five stock-holding commercial banks is similar to the four state owned banks. The coefficient is negative as well. The ROAs are increasing in general， which suggest the profitability of these banks is increasing. So the effect of rate liberalization is limited. iii. City commercial
14、banks However， the burden carried by city commercial bank is burdensome. Compared to joint-equity banks， their reliability on net interest margin are relatively higher. Therefore， they are more vulnerable when they face more intense competition by big banks. TABLE 4： ROA of three city commercial ban
15、ks and its coefficient with interest margin Unlike the big commercial banks， the influence on these three city commercial banks is obvious. The reason that ROA of the bank of BeiJing is increasing and coefficient is negative and significant is that it has been listing in 2007. If calculate the coeff
16、icient only after 2007， we will find that the coefficient is positive. So does the bank of NanJing. Apparently， the rate liberalization negatively impact the earning power of small banks， for their reliability on interest margin is strong. This result confirms the prediction that the impacts on city
17、 commercial banks will be most apparent. IV. Conclusions and suggestions In the process of deepen financial reform， the interest rate liberalization plays a significant role. Though the seller market in banking industry is unshakable as usual， the impact of rate liberalization has been emerging， inc
18、luding in the profitable area of commercial banks. By means of analyzing ROA and its coefficient with interest margin， we conclude that the profitability of city commercial banks has been reduced by rate liberalization. However， the big banks like state-owned banks and joint-equity banks are still r
19、un stably. This may attribute to its large scale of capital， lots of outlets， stable base of consumers and well-known reputation. Furthermore， as table 1 has showed， the interest margin reduces after rate liberalization. And the fluctuation of interest is greater， so the rate risk increases. Therefo
20、re， the reformation of the management of rate risk is urgent. However， many limitations exit in this paper. The data only includes ROA and rate margin， so it is not convincing enough. In spite of these limitations， the influence of rate liberalization on commercial banks is still a question deservin
21、g research. And the profitability is significant for a bank. Reference： 1DaPeng Liu.（2014）. The rate liberalizations influence on profitability of commercial banks in China（master thesis）. Retrieved from WanFang database. 2HuiLi.（2004）. The impact of rate liberalization on the commercial banks and t
22、heir coping strategy（master thesis）. Retrieved from WanFang database. 3JiaZi Liu.（2013）. The impact of interest rate mercerization on the city commercial banks： case of AB bank（master thesis）. Retrieved from HowNet. 4Qi Sun.（2014）. Research about bank deposit rate liberalization in China（master thesis）. Retrieved from HowNet.
