Research On The Impact Of Fees And Commission Income On The Profitability Of Commercial Banks In China Under The Background Of Interest Rate Liberalization

After the 1980s,the thoughts of financial liberalization has been widely recognized and quickly spread in the world.Some developed countries took the lead to loosen interest rates, and then some developing countries also joined the reform team of interest rate liberalization. According to World Bank statistics, as of 2014, there are 44 economies implemented the market-determined interest rate. Since 1996, China steadily give impetus to the interest rate liberalization. After 20 years'reform, with the People's Bank of China in October 24,2015 announced the full liberalization ceiling on deposit rates, China's interest rate liberalization reform finally got its complete shape.Faced with narrower spreads between deposit and loan, the traditionally dominant net interest income can no longer bring sustained profitability, under the new situation, many banks have converted income structure, choose the non-interest business as the way to stabilize the profitability. Recently, banks' non-interest income and its impact on profitability become a hot spot, some domestic and foreign scholars choose the overall non-interest income as the object of research, but the conclusions are not the same. In view of the non-interest income includes many revenue types, and each type has a different benefit-risk characteristic, this article will study a more precise object, fees and commission income, which occupies the largest part of the non-interest income. And provide further analysis of the traditional and new types of fees and commission income's contribution to the ROA.This paper set the process of interest rate liberalization reform and restructuring of commercial banks' income as background. Firstly, explain the concept of research objects, comb available literatures about interest rate liberalization reform, including both the impact of it on bank profitability and measures of banks, give a review and generalize the results of research, point out defects. Then list the relevant theory, create the theoretical support for the whole paper, then describe what is the interest rate liberalization and its connotation, the major events and development status of the interest rate liberalization in China, analyze the current economic environment, the need for the implementation of interest rate liberalization, its real influence on the profitability of commercial banks. Then use the collected data analyze the profitability and income structure status quo of China's commercial banks, summarize the characteristics of interest income and fees and commission income, analyze the need for banks to change the income structure, the need to expand the latter.In the empirical section, this paper set 2007 to 2014 as the research period, collect the operating data of 16 A-share listed commercial banks, take scholars' exiting conclusions as a reference, set the return on assets as the profitability variable, set fees and commission income ratio and interest rate market index as the explanatory variables, and add the logarithm of banks'assets, the tax burden ratio, the cost-income ratio, provision coverage ratio, the logarithm of gross domestic product as the controlled variables, use the fixed effect panel model as this paper's multiple regression equation. To ensure the reliability of the conclusions, this paper use profit ratio as explanatory variable to test the robustness of the original conclusions. In this paper, the whole sample is then divided into two sub-samples:large banks and medium-sized banks to get a more targeted conclusion, then analyze the bank card revenue, proxy revenue, clearing fees, custody revenue's contribution to banks'profitability.Through the research, this paper got the following five conclusions:First of all, the implementation of interest rate liberalization will adversely impact the profitability of banks, and the adverse effect suffered by medium banks is more obvious. Second, the fees and commission income can increase the profitability of banks and large banks get a more evident positive return. Third, under the interest rate liberalization, asset size and profitability of the bank is not a positive relationship, indicating that banks simply expand scale is unable to improve profitability. Fourth, the banks' capacity of cost management under the reform is more prominent, reducing cost to income ratio will significantly enhance the profitability of banks. The last but not the least, banks should develop new business sorts for that new business sorts demonstrate more contribution to banks' ROA.Finally, the paper provide the four targeted recommendations to the regulators and commercial banks.