An Empirical Study Of The Non-interest Income And Risk-taking Of China’s Listed Commercial Banks

It has been than ten years since China joined the WTO, and China’s bankingindustry has got an impressive performance. As of the end of March2013, the totalassets of China’s banking financial institutions reached141.3trillion RMB, the returnon capital and return on assets was21%and1.37%respectively, which all reached theinternational advanced level. Such rapid development of China’s banking profitability ismainly due to the high deposit and loan interest rate under the control of Chinesegovernment. However, as the interest rate liberalization continues to accelerate and thefinancial disintermediation phenomenon becomes prominent increasingly, the operatingenvironment of China’s commercial banks has changed dramatically. The traditionalprofit model which is over-reliance on deposit and lending is not sustainable. However,can we reduce the risk by develop non-interest business like foreign banks? We shouldrationally see that non-interest income brings risks when it create an increase in bankingincome. Moreover, there are many differences between the non-interest income ofChina’s commercial banks and Western commercial, such as ours start late and facewith different institutional environment, regulatory environment, technological progressand the extent of financial innovation. Therefore, when we study how the non-interestincome influences the bank risk while increasing bank income, we should take theactual situation of China’s commercial banks into account to guide China’s commercialbanks to develop non-interest income.Based on the above background, this paper adopts the panel data of China’s16listed commercial banks from2003to2012for study, and carries out empirical researchon the relation of non-interest income and the bank size with its risk. This paper firstdescribes the research background and significance, determines the research methodsand thesis framework, and summarizes the relevant literatures, writings and theories.Secondly, the paper sums up the development process of China’s commercial banks’non-interest income business, and makes a comparative analysis of the differencesbetween China’s commercial banks and foreign commercial banks’ non-interest incomebusiness. Then, the paper constructs a regression model to analyze the relationshipbetween non-interest income of banks and the operating risks. Finally, the paper putsforward specific policy recommendations.This study finds that there is still a large gap between China’s commercial banks and foreign-developed commercial banks in non-interest income. Meanwhile, Theresults show that there is no significant correlation between non-interest income and therisk-taking, which is due to the close association between non-interest income and netinterest income of China’s commercial banks, so non-interest income cannot reduce therisk-taking effectively.