Research On China Interest Rate Liberalization And Refinancing Of Listed Commercial Banks

The listed commercial banks, while on the way of large-scale expansion in credit in2009, are all to some degrees, undergoing the decline in capital adequacy ratio, which is under the requirement of the capital adequacy ratio of the regulatory authorities. So they are faced with the pressure of acquiring additional capital through financing plan, which then formed the refinancing boom of the listed commercial banks.Currently more than80%of the listed of commercial banks operating revenue comes from interest income, which makes the listed commercial banks have the impulse to expand the size of credit to increase interest income, then get an increased revenue. It is the existence of a higher deposit and loan spreads that makes the listed commercial banks to expand the size loan credit, and pave the way for refinancing.This article analyses the spreads model under two cases, and extends this model into the profit maximization model of the listed commercial banks and then comes to the conclusion.The empirical findings show that:(1) Under the conditions of interest rate controls, there will be a fixed spreads,which is the linear coefficient between a commercial bank profits π and the size of bank credit. As commercial bank profits π is an increasing function of the size of bank credit, which leads the commercial banks to pursue the profit maximization goal by expanding the size of credit. At the same time, under the CBRC’s Capital Adequacy Ratio mode, there will be a linear relationship between the bank’s capital supplement and its credit expansion (the coefficient is positive), so while the banks are expanding in the size of credit, they are faced with pressure in supplementing capital. That is to say, under the interest rate controls, the results of the commercial banks to maximize profits will lead to the banks’constant need of replenishing capital, thus forming a "loan-refinancing4oan cycle".(2) Under the interest rate liberalization conditions, the interest rate is determined by depositors and lenders in the market, and will form a deposit and lending spreads, as a intermediate price for banks providing services for depositors and lenders. Differently, there will be a optimal size of new loans as results of commercial banks in the loan market chasing profit maximization. Under the condition of interest liberalization, the profits making of commercial banks are no longer maintaining a linear relationship just as under the interest rate controls with the size of new loans, but there is an optimal solution. So banks will not simply pursue the scale of credit expansion to increase profits, but will consider the costs and benefits of the loans, as well as intermediate business income and other factors, to grant the loan size, thus banks will escape from the "loan-refinancing-loan"cycle.