Interest Rate Marketization And Development Of Large State-owned Banks Of China

In many countries, interest rate has been liberalized. But their experience also shows that the reform may bring many risks to banks, or even crises. In china, it has been more than16years since the government began to liberalize the interest rate. Now the reform is touching the core: ceiling on deposit rates and floor on lending rates.The reform will bring much more earning risks, credit risks and interest rate risks than ever to the four major state-owned banks of China. But on the other hand, it also contains a historic opportunity. Interest rate sensitivity gap model shows that, the four major banks all have a significant short-term negative gap. If the interest rate rises in the short term, the four banks will have a great decline in profit. The stress test also shows that the non-symmetrical rising of interest rates (deposit rate rise greater than lending rates) will give the four state-owned banks a huge impact.Competition in the banking sector is becoming more and more intense. The four major state-owned banks have to change their strategies to adapt to the environment. They should turn from extensive development to intensive development. They should focus on intermediary business and retail business; and as the four largest banks of china, they should try to go abroad and take the road of international development.