Research On The Influence Of Chinese Commercial Banks’ Financial Innovation On Bank Profitability

In recent years, Chinese banking industry has reformed in a deep level and has reached a remarkable achievement. However, there is a large gap of financial innovation between Chinese commercial banks and other countries. Since 2015, the People’s Bank of China has cut interest rates on deposits many times, so far, China has released the deposit interest rate floating ceiling of one-year and above(excluding one-year), and expanded interest rate floating ceiling of one-year below and current deposit interest rate to 50%,and the deposit insurance system has be applied. All of these phenomena show that it is about to fully complete the liberalization of interest rate in our country. The liberalization of interest will have a great influence on the profitability of our commercial banks.Especilly after the financial crisis, great changes have taken place in the international financial environment, the world economy have a further differentiation and adjustment in the process of recovery and the difference is obvious. The national economy of our country has entered in a new norm, keeping running smoothly and growing slowly. Although commercial Banks still keep stable operation on the whole in this condition, the growth rate of net profit has declined year by year. In order to cope with the huge pressure from liberalization of interest rate and net profit declining, China’s banking industry is in need of financial innovation to maintain stable and healthy development.This paper based on the perspective of financial innovation, theoretically analyzes the commercial bank financial innovation and profitability, then, introduces the status quo and characteristics of financial innovation in American commercial banks, comes up with some inspirations and references to the development of our commercial banks’financial innovation. This paper uses qualitative analysis, quantitative analysis as well as comparative analysis method to study the influence of Chinese commercial banks’financial innovation on bank profitability, and finally puts forward some policy suggestions.This article analyzes the influence of Chinese commercial banks’ financial innovation on its profitability from five aspects:products and businesses innovation increases the banks’operating profit, but they also have risks that we should not neglect; management innovation could improve banks’profitability by reducing their operating costs; organization innovation could improve the banks’internal system and enhance the efficiency of allocating resources and the profitability of commercial banks; regulatory system innovation provides security environment to the banks’operation, but at the same time, it also limits the development of some banking businesses, affects their profitability; technology innovation not only reduces the cost of the bank, but also expands its customer base, improves the profit ability.On this base, the paper uses the return on assets as the variable of bank development ability, non-interest income accounted for revenue as the variable of financial innovation, and selects the indicators of bank scale, net interest margins, capital adequacy ratio etc as the control variables, setting up panel data model to conduct the research. In order to analysis better, this paper choose five state-owned commercial banks,12 national stock-holding commercial banks, and 37 city commercial banks constitute three sample groups, regressing respectively in order to compare the different financial innovation influence of different type of banks. The results show that:the financial innovation has different effects on different types of bank, the influence on the state-owned banks and national stock-holding commercial banks is greater than the influence on the city commercial banks.At last, this paper puts forward policy suggestions from the macroscopic aspect and microscopic aspect to promote Chinese commercial banks financial innovation ability. At the macroscopic aspect, the government should promote the mixed operation of commercial banks, formulate relevant laws about intermediary business; at the microscopic aspect, the commercial banks should improve their products pricing power, strengthen the cooperation with non-bank financial institutions, e-commerce and the third party payment agency, consistent with the policy guidance in the process of financial innovation, and attach great importance to the risk management, etc.