Research On The Impact Of Changes In Bank Income Structure On Bank Risks Under Interest Rate Liberalization

In the background of the sustained economic growth of China,the accelerated progress of interest rate liberation and the rapid development of Internet finance,the competition of banking industry is becoming more and more intense.The traditional profit model which mainly focused on the income between loan and deposit has also been greatly challenged.In 2004,the government began to ease the restrictions on the separate operation of commercial banks.Commercial banks started to learn from the experience of those in western countries.They started to change the traditional income structure which was simply depended on the interest and make effort to develop non-interest business.At this time,the non-interest income has been a new driving force to stimulate the growth of commercial banks.Therefore,the study of whether the changes on the income structure of commercial banks will bring risks to banks or not is of great significance to the future development of commercial banks.This paper attempts to study the influence of changes on China’s listed commercial banks’ income structure on bank risks in the context of interest rate liberation.First of all,we review the research results on this issue conducted by studiers all over the world.By summarizing the results,we found that foreign scholars generally believe that the changes on income structure would affect the bank risk regularly.The non-interest income would decrease the risk firstly and then increase the risk.However,domestic scholars haven’t reached a unified answer of the diversification effect on bank risks due to the difference between the selected research object,research methods,and the theoretical basis.So our paper suggests that the interest rate liberation must be included when we analyze the impact of changes on income structure on bank risks.Secondly,we use the scope economy theory and portfolio theory to analyze the influence of changes on commercial bank’s income structure on the bank’s income and risk theoretically,and then explore the transmission mechanism of the impact of income structure changes on bank risks.Through the theoretical derivation we found that the changes on commercial banks will not only increase bank income but also the bank risk.Thus,this paper used the financial panel data of China’s 16 listed commercial banks from 2007 to 2016 to conduct the empirical analysis.The samples are also divided into state-owned listed commercial banks and joint-stock banks to make a contrast.The empirical results show that:(1)the advancement of interest rate liberation can improve the profitability of banks.But affected by commercial banks’own asset size,shareholders’ equity ratio and current macroeconomic recession,the effect on the state-owned bank risk has been greatly decreased,but the effect on the joint-stock banks is not significant.(2)Under the background of interest rate liberation,banks’ effort to change the income structure and develop non-interest income businesses would improve the bank profits and reduce the risk significantly.State-owned banks take advantage of their asset size to carry out a variety of non-interest income business,which can significantly reduce the level of faced credit risk as well.Finally,we put forward some suggestions on how to carry out the changes on income structure and develop non-interest income businesses so that the bank risks could be reduced to commercial banks in our country based on the research results.