Research On The Determinants Of Net Interest Margin Under The Background Of Interest Rate Liberalization

Based on the macro background of the interest rate liberalization,this paper studies the determinants of the net interest margin for Chinese commercial banks.In researching on the net interest margin of commercial banks in China,few scholars pay attention to the huge pressure brought by deposit reserve as an important implicit tax on the operation of commercial banks.Considering that our country’s deposit reserve ratio is still at a high level in the world,while the net interest margin of our country shows a downward trend,which is at a low level in the world,and banks are facing downward pressure of the net interest margin.Therefore,special attention must be paid to the deposit reserve,where opportunity cost and implicit tax revenue have an important impact on the net interest margin.Considering the important influence of interest rate liberlization reform in China,we divide Chinese commercial banks into four categories(5 state-owned commercial banks,12 joint-stock commercial banks,17 city commercial banks and 16 rural commercial banks).Besides,we establishe a fixed effect model.From 2007 to 2017,under the background of interest rate marketization,we control the micro-control variables of banks,industry heterogeneity indicators and macro-control variables,and especially focus on the impact of deposit reserve ratio and its squared term on net interest margin.The regression results show that the impact of reserve requirement ratio on net interest margin in China is U-shaped.From the current regulation of reserve requirements ratio,the status of China is still on the left side of the U-shaped inflection point that is,the increase of reserve ratio is equivalent to a kind of implicit tax.Under the environment of fierce competition,commercial banks will bear this part of the cost,the rise in the reserve requirement ratio will lead to the net interest margin narrowed;However,with the increasing reserve ratio,commercial banks have to transfer this opportunity cost to consumers when they can not afford this part of the cost,which may lead to a rise in the net interest margin.To sum up,China’s high deposit reserve ratio is a heavy tax burden for commercial banks and difficult to transfer to consumers on the background of interest rate liberalization,while China’s net interest margin is at a low level and the downward pressure is greater.Therefore,the central bank could learn from the reserve system of the United States and make corresponding adjustments to China’s reserve system.Banks themselves also need to transform their business,constantly innovate their business operations,diversify their profit growth points and reduce their excessive dependence on deposits,so as to make commercial banks develop steadily and continuously.