Research On The Influence Of Liberalization Of Interest Rates In China On The Profitability Of Listed Commercial Banks

The liberalization of interest rates means the process in which market entities can set interest rates at their own discretion. On 24 th, October, 2015, the interest-rate ceiling was eliminated by China's central bank, marking the advent of era in which interest rates are set by market in China. The banking system, as a crucial part of the financial system, is bound to be subject to the liberalization of interest rates, which is of vital importance to the financial system. So China's commercial banks, in the face of new market conditions, will have no choice but to rival each other in the identical setting. Varying degrees of financial crises and economic disruptions, however, have happened in many countries during or shortly after their liberalizations of interest rates, forcing many banks on the brink of collapse. Accordingly, the question that we should focus on and discuss is how can the profitability of commercial banks be enhanced and how can banks be competitive in every competition.In the first place, after studying the relevant research on the profitability of commercial banks and understanding the stages in China's liberalization of interest rates within the perspective of the impact of the liberalization of interest rates on profit making of commercial banks, this thesis, in terms of net interest income and non-interest one, examines the profitability of China's commercial banks, followed by their existing problems in profit making. In the second place, the thesis gives an analysis on the mechanism of the influence of the liberalization of interest rates on the profitability of commercial banks. Then, according to this mechanism, the thesis conducts an empirical test with 15 major listed banks and their annual data from 2007 to 2014 as subjects. Next, after a regression test by pooled estimation model decided by Text F, the thesis comes to the conclusion that the profitability of commercial banks is directly related to the scale, liquidity, innovation, internal affairs of banks and the macroeconomy, while the poor safety and the excessive expenditure of business and management have an adverse impact on the profitability.In the end, based on the results of the empirical test, the thesis specifically makes some suggestions as follows:(1) Importance should be attached to the traditional form of net interest income and deposit products needs innovating.(2) Great efforts should be made to grow non-interest business, diversifying the source of income for banks.(3) Importance should be attached to the promotion of risk management capability.(4) The business transformation of different banks should vary from each other.(5) Operating efficiency can be improved by refining the structure of governance.