Non-interest Income And Its Effects On The Operating Risks Of China’s Commercial Banks

As the pace of financial liberalization steps up and the regulatory policy loosens, capital markets amd non-financial institutions have witnessed a rapid rise and the trend of financial disintermediation is becoming more evident. In the context of increasingly declining traditional deposit and lending activities, the exploration of non-interest-bearing business has become a widely accepted strategy for international banking industry to find a way out. According to Bon-sung and Woojin, non-interest income of the commercial banks whose assets ranked in the world’s top131from1998to2003accounted for nearly40percent of the total banking earnings and for some banks the proportion even surpassed70%.As to the proportion of non-interest income to the total earnings, the current banking industry of China is the equivalent to that of America in early1980s, which is in a status of mixed financial operation, itching for a chance. In recent years, the growth rate of Chinese commercial banks’non-interest income has far exceeded that of the interest income, and the innovation of non-interest business is gradually accelerating.From a policy perspective, regulators also tend to encourage banks to actively explore the non-interest-bearing business in order to increase the variety of businesses and enhance service capabilities. For China’s banking sector, the commission fee constitutes the main body of the non-interest income in the non-interest business. Here comes the question:Is the non-interest income more stable than the net interest income? Does the non-interest income really have the diffusion effect?This paper makes a review of relevant theory and research findings at home and abroad, and sorts out the development line of China’s non-interest business from2006to2011. In the content part, the risks of banking industry caused by non-interest income are divided into two aspects:the effect on income fluctuations and profitability.In the first section, a model, based on assets portfolio theory, is set up by selecting the annual report data of14listed banks from2006to2011, with the aim of examining the effect of non-interest income on the fluctuation of total bank earnings from the perspectives of volatility of the non-interest income itself and from the interrelationship between non-interest income and net interest income.In the second part, in order to increase the sample size, this paper selects semi-annual report data of14listed banks from2006to2011and sets up an empirical model to investigate the effect of the proportion of non-interest income on the risk-adjusted return on asset(RAROA), with RAROA as explanatory variables.