Research On The Impact Of Non-interest Income On The Performance Of Commercial Banks In China

Since the late1970s, the Western developed countries have set off a wave of Financial Liberalization, the financial supervisory has relaxed and the trend of financial integrated operation was obvious. Since financial liberalization advances and application of science and technology in financial field, Western commercial banks launched Diversification Strategy and established large financial holding companies. These banks engaged in securities, funds, insuruance, fiduciary and other financial to expand the sources of income. The proportion of non-interest income in the EU banks had reached41%in1998, the non-interest income has become another major income source in commercial banks fowling net interest income. After the subprime mortgage crisis, Western commercial banks began to deleverage and divest non-core businesses, so the non-interest income had reduced. Non-interest income accounted still reached36%after crisis, So it is very important to commercial banks.The development of our country commercial banks is late due to the historical and institutional, so the structure of revenue in commercial is single, net interest income accounted for80%of operating income. Since China’s economic and social development, disintermediation and interest rate liberalization in recent years, commercial banks are set off diversification strategy and boost non-interest income. Commercial banks have the advantage to boost non-interest income due to economies, but it also invest another cost and has some risk. It needs the real of China’s situation to analysis what the impact of non-interest income on revenue of commercial banks.This paper studies the impact of non-interest income on the performance of the commercial banks in China. In order to analysis the impact from the theoretical, this paper describes four theories on the non-interest income. First, the theory of scope economy. Second, Diversification theory.. Third, financial innovation theory.. Forth, the financial liberalization theory. it is financial liberalization that provides a loose legal environment and policy environment to commercial banks which expand non-interest business and makes the non-interest business development in a much more space.Given the data, this paper selects14commercial banks as a sample of Chinese commercial Banks, including the five state-owned commercial banks and seven joint-equity commercial Banks. And this paper selects the related data of commercial Banks from2002to2011to do regression analysis between the non-interest income ratio and return on assets. It is found that non-interest income proportion is positive correlation, but the relationship is not significance. That indicating the positive correlation has not been fully revealed.For further studying the effect of non-interest income on commercial Banks performance, this paper divides non-interest income into fees and commissions and other non-interest income, and then put the fees and commissions percentage and other non-interest income ratio and return on assets commercial banks respectively to do regression analysis. The results showed that fee and commission income ratio and return on assets is relevant, and the results significantly, while the other non-interest income ratio and return on assets is negative correlation, and the results are also significant.There are two possible reasons that cause the positive correlation between non-interest income and banks’ earnings is no significant. First, non-interest income ratio is low. After recent years of rapid development, commercial bank’s non-interest income proportion gets obvious increase, but the non-interest income proportion is still low. Non-interest income accounted for only about20%in2011, compared with the foreign developed countries accounts for50%of non-interest income ratio, our country commercial bank non-interest business development is not enough. Second, volatility of non-interest income. Our country commercial bank non-interest income relies mainly on the fee and commission income, fees and commissions non-interest income is as high as80%of net revenues accounted, this part of the income is stable. While other non-interest income, including investment returns, profit of fair value, exchange gains, etc, this part of income is only20%of non-interest income. But due to this part of income by the economic cycle has a great impact and various commercial Banks business strategy, therefore, this part of income volatility makes the positive contribution is not obvious. In the commercial bank of our country, fees and commissions account non-interest income up to80%of net revenues, so fee and commission income make up the main part of non-interest income. Fee and commission income ratio and return on assets is positive correlation, which indicates increasing fees and commissions net income in the proportion of business income will help to improve commercial banks’ earnings. From the empirical perspective, increasing the net income fees or commissions and reducing other non-interest income can improve the performance of commercial bank. But it is the unreasonable structure of non-interest income in our country. Return on investment, exchange, profit of the fair value, earnings, and other non-interest income ratio is too small. Besides that policy did not let go, the main is that commercial banks in China can’t grasp well the section non-interest income risk. This part of income volatility, there was negative profit in some years.After theoretical and empirical analysis, this paper draws the following two conclusions:First, the non-interest income of commercial Banks performance effect is not significant, because other non-interest income is negatively related to the performance of commercial Banks, this part of the income risk is higher, volatility is bigger, makes the non-interest income performance of commercial Banks is no significant effect on whole. Second, the development of the commercial Banks should be targeted non-interest business, improve non-interest income. In view of the handling fee and commission income, commercial Banks should further expand the scale and quality related non-interest business, raising fees and commissions on net income. For other non-interest income, China’s commercial Banks should give priority to control risk, reduce or change other side-effect of non-interest income of commercial Banks.The positive contribution between non-interest income and performance of commercial Banks assets yield is not obvious. However, the coefficient of non-interest income proportion is positive, so the non-interest income began to produce positive returns. This paper has concluded four suggestions and revelations at last. First, commercial Banks continue to vigorously expand non-interest business, especially the increasing fees and commissions from the scale and quality of non-interest business. Chinese commercial banks have to increase non-interest income ratio. Our country commercial bank is still simple financial institutions at present, and they are not able to provide customers with comprehensive financial services. Second, Third, strict control of non-interest business operating costs. Although our country commercial bank development of non-interest business has many advantages, but it still need to put into a certain operating cost. With the development of non-interest business, non-interest income is likely to be its operating cost brought by the absorption. Finally, the commercial banks should uphold the principle of prudence in the development of non-interest business. Part of non-interest income has great volatility, such as return on investment, exchange gains and the fair value changes, etc. Compared with foreign commercial Banks in developed countries, our country commercial bank non-interest business development is still in its infancy, and lack of experience. Therefore commercial banks should not do blindly expand non-interest business and to improve non-interest income.