An Empirical Research On The Effect Of Intermediary Business On The Performance Of Commercial Banks

Since1980s, the intermediary business of western commercial banks hasbecome as important as the business of assets and liabilities. However, in ourcountry, with the speeding up of the market-oriented interest rate reform, thecommercial banks, which are used to rely on interest income, are facing greatchallenge. And researchers generally believe that the commercial banksshould vigorously develop intermediary business. This paper aims to study theeffect of intermediary business income on the performance of commercialbanks, and puts forward practical suggestions on the development ofintermediary business.This paper adopts the research technique which the qualitativeinvestigation and the quantitative investigation unify.First of all, the paper analyzes the concept and classification ofintermediary business, and the similarities and differences betweenintermediary business income and non-interest income, and then give reasonsfor the use of non-interest income data for intermediary business research. Onthis basis, this paper examines the background of the development ofintermediary business of commercial banks in China, and overall situation ofthe development of intermediary business of commercial banks. Intermediarybusiness income grows fastly, but has not yet become a pillar business ofcommercial bank.Afterwards, the paper inspects the structure of intermediary businessincome in detail. In summary, there are fewer types of intermediary business ofChinese commercial banks. The business which plays a leading role in theoperation is relatively simple types such as proxy, settlement, and bank cardsand so on. However, the intermediary business with high added valueaccounts for relatively small.The paper is based on the annual report data of16listed commercialbanks from2007to2013. According to the analysis of the component of thebanks′net fee and commission income, the paper comes to conclusion that thetraditional intermediary business such as the bankcard, payment andsettlement business develops rapidly, meanwhile, the consulting, financial andother new business have become an important source of income. The emerging intermediary business develops more faster than traditionalbusiness.Various banks have different development priorities in intermediarybusiness, and which manifests different competition strategy. The joint-stockbanks’ fee and commission income grows faster than the state-owned holdingbanks’, and the joint-stock banks manifest strong enterprise in the emergingintermediary business. Other non-interest income accounts for a smallproportion of intermediary business, but can develop in a large space.To analyze the effect of intermediary business income on the performanceof commercial banks, the annual data of the15listed commercial banks from2007to2013carried out an empirical study. This paper chooses ROE asvariable being explained, the share of net fee and commission income in therevenue and the share of other non-interest income in the revenue as theexplained variables, and the logarithm of the total assets of the banks and thecost-to-income ratio as control variables, then builds a fixed-effect panel datamodel with these variables.The result shows that fee and commission ratio and the banks’ ROE havesignificant negative correlation, and other non-interest income ratio and thebanks’ ROE are positively correlated, but the correlation isn’t significantly. Thatis to say, intermediary business income and the performance of banks havenegative correlation, and intermediary business income growth will lead to adecline in the performance of the banks. The total assets of the banks andbank performance are significantly positively correlated, cost-to-income ratioand bank performance are significantly negatively correlated, and banks’ fixedeffect has a great influence on bank performance.On the basis of above analysis, this paper puts forward the followingrecommendations: to reverse the misunderstanding of one-sided emphasis onkeeping up with western commercial banks and developing intermediarybusiness vigorously, recognize clearly that Chinese commercial banks andforeign banks have different development backgrounds, therefore we shouldfocus on overall profitability of commercial banks, rather than one-sidedemphasis on improvement of intermediary business income share in therevenue. Meanwhile, we should improve relevant laws and regulations, cancelseparate operation gradually, and create a favorable external environment for the development of intermediary business, promoting the development ofintermediary business of commercial banks. Commercial banks should tryhard from many aspects, such as improving the innovation ability, launchingintermediary business products closing to the market demand, setting up costconsciousness, improving efficiency, cultivating high-end talents, andoptimizing the management of intermediary business.