Study On The Relationship Between Business Structure And Profit Level Of Commercial Banks In China

Commercial banks have been playing an important role in China's financial market.In 2015,the reform of interest rate marketization is basically completed,which brings opportunities as well as challenges to China's banks.At present,the profit model of commercial banks in China is mainly interest business,and the proportion of non-interest income is much lower than that of international advanced commercial banks.The leading international experience shows that the completion of interest rate marketization will bring increased competition,interest rate spreads shrink and declining profits to banks in the short term.The increasing improvement of the regulatory system is expected to reduce the risks faced by banks,but also bring some pressure on their profits.Therefore,in order to avoid being left behind,it is necessary for banks to change the business structure,the profit model and to improve their profitability level in the new economic environment.In this paper,annual data from 2011 to 2017 of 26 A-share listed banks is selected.First of all,by using principal component analysis,the paper constructs a comprehensive profit level score index with five usual profit indexes: return on average assets,return on average equity,cost-to-income ratio,operating profit margin and return on risk weighted assets.The average score of state-owned banks and city firms are found to be higher.Secondly,unlike previous studies,which only measures business structure with the proportion of interest business or non-interest business,this paper divides the banks' business structure further,from deposit,loan,interbank business to intermediate business(especially trust,agent business and investment banking)and makes an empirical study on the relationship between profit level and business structure.The results show that there is a significant positive correlation between the profit level of China's commercial banks and non-interest business at present.The state-owned banks and joint-stock banks can improve the profit level through the development of investment banks,trusts and other non-interest businesses.City commercial banks and rural commercial banks' non-interest business is mainly agent sale.These two types of banks have the necessity of developing non-interest business.However,it is not suitable for them to invest too much in non-interest business for constraint of money.There is a negative correlation between corporate loan business with banks' profit level.As a result,it is necessary to improve the proportion of retail banking.City commercial banks and rural commercial banks should take advantage of local resources as well as control operating costs and ensure the stability of interest business.As a result of tight regulation since 2014,the interbank business has a negative correlation with the profitability of banks,and it can no longer play a main role in profitability.In general,banks can no longer rely on the expansion of assets.While maintaining interest business development,they should enhance innovation ability,control risk,develop non-interest business and implement differentiated management.