The Interest Rate Market, China's Commercial Banks Asset Liability Management Study

In January 2005, The People's Bank of China issued the "steady advance the marketization of the interest rate report" , which Systematically reviewed the China's process of market-oriented interest rate ,in October 2004 has been successfully achieved a " maximum limit loan rates-minimum deposit rates management control" the marketization of the interest short-term targets. The ultimate goal of the marketization of the interest rate is that interest rates according to market supply and demand fluctuate and the financial institutions themselves decide on interest rates. With the rapid progress of the marketization of the interest rate, the management control and profit model of the commercial banks will be greatly influenced. On one hand, the marketization of the interest rate will create a freer management environment for the commercial banks which will be propitious to optimize the allocation of resources and enhance the management autonomy; on the other hand, there will appear such problems as tense competition between the commercial banks and increasing rate risks at initial stages of the marketization. Fluctuation of interest rate influences on the net interest income and other income and expenditure sensitive to the interest rate, and thereby on the operating profit. Therefore, to strengthen the interest rate risk management as the core content of assets and liabilities management has become more and more important. The fundamental purposes of the ALM in our commercial banks are to keep the interest rate risk within certain limits and to raise the net interest income as much as possible, i.e. to realize the maximization of profit based on a certain interest rate level.The article is divided into five parts:Part one introduces the research background, the relevant theoretical basis, and the article structure and research methods.Part two explains the connotations of the marketization of the interest rate, the goal of China's marketization of the interest rate, the basic principl es and the general idea first, and then recalls the experience of China's marketization of the interest rate reform several stages. Finally, it sums up the results of a stage in the marketization of the interest rate reform.Part three analyzes that the marketization of the interest rate reform will expand our commercial bank interest rate risk, and it has a major impact on the operations and management of commercial banks such as net interest income and other income and expenditure sensitive to the interest rate which will impact on the operating profit finally. Owing to there are many problems in management of the assets and liabilities of China's commercial banks, and asset-liability management system based on a pro-rata basis is a relatively junior management. There is still a wide gap compared with mature asset-liability management methods in Western commercial banks. Therefore, asset-liability management is very important and urgent on condition that China's commercial banks confront the marketization of the interest rate.Part 4 describes management methods of the assets and liabilities in Western commercial banks, and analyzes their advantages and disadvantages.Part 5 puts forward five strategies on management of commercial banks'assets and liabilities according to actual circumstance of financial market .First, improve management methods of commercial banks' assets and liabilities; Second, improve the management system of commercial banks' assets and liabilities of .Third, adjust the structure of commercial banks' assets and liabilities and expand our scope of business; Fourth, increase the capital of commercial banks in order to enhance capacity of competition. Fifth, perfect the scientific pricing strategies of commercial banks' financial products.