An Analysis Of Interest Rate Risk Of China’s City Commercial Banks Based On Stress Tests

As China gradually speed up the process of marketization of interest rates, frequentfluctuations and increase volatility of interest rates are bound to have some impact oncommercial banks, because of a long period of interest rate controls. Based on analysis ofoperational characteristics of the city commercial banks we can find that the city commercialbanks are more dependent on the interest income compared with the joint-equity commercialbanks and national commercial bank, and other means to get profit are weak; on thecomposition of interest income, in addition to traditional deposit and lending business, citycommercial banks are more dependent on some high-risk business as debt securities andresale, while the proportion of intermediary business revenue is low. So the city commercialbanks may face greater risk of interest rate.Empirical part of this paper use the method of stress testing on five sample citycommercial banks, research the impact of fluctuations of interest rate on net interest income,and the ability of banks to withstand interest rate risk. This paper used interest rate sensitivitygap method and optimization method of interest rate sensitive gap to test five samples of citycommercial banks’ ability to withstand interest rate risk.The result also verified the precedinganalysis that changes of interest rates have a significant impact on net interest income of citycommercial banks, and the proportion of changes in net interest income is high, when we useoptimization method we can get a more significant result. So compared with other banks, thefrequent changes of interest rates will inevitably has a greater impact on profit, operation andmanagement of city commercial banks. At the end of the paper, we get some proposal toimprove the stress tests and the interest rate risk management of city commercial bank.