Research On The Effect Of Interest Rate Liberalization On Credit Risk Of Bank

In 2015,China completely liberated the control of the floating deposit interest rate.At the same time the deposit insurance system was established.The two things has marked a breakthrough in financial liberalization.The reform of interest rate liberalization is an important segment for the adjustment of current economic structure,which effectively promotes the decisive role of the financial market in the allocation of resources.However,from the experience of foreign countries,the reform of interest rate liberalization tends to be accompanied with the narrowing of net bargain,the intensification of market competition and the increase of risk-taking of the bank.The financial risk is mainly credit risk.This paper mainly studies the effect of interest rate liberalization and its induced market competition to the credit risk of commercial banks.In the theoretical analysis,firstly,this paper introduces the related concepts of interest rate liberalization,market competition and bank stability,credit risk of commercial banks.Secondly,summarizing the influence of interest rate liberalization on commercial banks and financial system in other countries.Finally,it is concluded that interest rate liberalization can narrow net interest margin,change the mode of bank management,intensify market competition and then influence the credit risk of commercial banks.In the empirical analysis,based on the large commercial bank’s panel data from the first quarter of 2008 to the third quarter of 2017,this paper shows that interest rate liberalization is in favor of decreasing the credit risk of commercial banks and the market competition will increase the credit risk.As to different kinds of banks,the enhancement of market competitiveness has improved the credit risk of state-owned banks but increased the credit risk of the joint-stock banks.It is concluded that under the environment of gradual interest rate reform,the bank system is in the constraint effect of franchise value and competition results in the vulnerability of bank.But for the state-owned banks,market competition is contributed to transfering and decreaing the credit risk,also in favor of the stability of banks.In addition,the non-interestincome ratio,the loan ratio,the growth rate of GDP and M2 also have significant correlation with credit risk of bank.Finally,it puts forward to policy recommendations for commercial banks and regulatory departments.