A Study On The Impact Of Interest Rate Marketization On Credit Risk Of China 's Commercial Banks

During the 12th five-year plan, the process of deposit interest rate marketization has been accelerated. It may have a significant impact on the credit risk of commercial banks. According to the international experience, after the implementation of the interest rate marketization, commercial banks can no longer rely on the interest spreads of deposit and loan to fulfill profit. To Maintain a sustained growth in profitability, commercial banks may expand credit supply or allocate more risky assets. It will lead to the rise in credit risk of commercial banks. In recent years, non-performing loan ratio of commercial banks in china has been rising from 0.95% in 2012 to 1.67% in 2015. And this trend is still continuing. Interest rate marketization and the credit risk of commercial banks may be closely related. Based on the above background, this paper researched the impact of interest rate liberalization on credit risk of commercial banks.On the basis of combing the domestic and foreign literatures, first of all, this paper defined the concept of interest rate liberalization and credit risk of commercial bank, and made general analysis on the formation of credit risk of commercial banks in China. It is found that the information asymmetry (result in adverse selection and moral hazard), weak internal control, lack of social credit system and local government intervention are the main factors that lead to credit risk. Secondly, this paper made a theoretical analysis on how the interest rate marketization affected the credit risk of commercial banks. Combined with other countries’ reform experience, the interest rate marketization had impact on the operation of commercial banks and led to credit risk. Therefore, this paper chose the ratio of loan impairment provision to total loan and non-performing loan ratio as the representative indicators of the credit risk of commercial banks, chose the degree of interest rate distortion, the Herfindahl index, asset scale, the ratio of loan to deposit, the ratio of cost to income, non interest income share, GDP growth, M2 growth, the share of corporate bond financing and stock financing in non-financial enterprises as explanatory variables, established a panel data model, and carried out an empirical test if the process of interest rate marketization has increased the credit risk of commercial banks. The results showed that the degree of interest rate distortion had a significant impact on the credit risk of commercial banks. In addition, the Herfindahl index, asset scale, the ratio of loan to deposit, non interest income share, M2 growth, the share of corporate bond financing and stock financing in non-financial enterprises also significantly effected on the credit risk of commercial banks. In the end, based on theoretical analysis and empirical analysis, the paper made some policy recommendations, such as urging caution over the rapid loan growth, actively developing intermediary business, relaxation the approval limitation of commercial banks and their scope of business, maintaining a moderately loose monetary policy, establishing the withdrawal mechanism of commercial banks, etc.