The Influence Of LPR Pricing Mechanism Reform On The Profitability Of Commercial Banks

In recent years,the reform speed of interest rate marketization in China has accelerated,and the changes and impacts caused by the process of interest rate marketization have become increasingly significant.In October 2013,China introduced the LPR(Loan Market Quoted Interest Rate)quotation mechanism for the first time,and the Chinese market began to pay more and more attention to the LPR quotation mechanism.Due to the imperfect market mechanism at that time,although it was introduced into the interest rate market,it was not widely implemented,so the effect of the first introduction was not significant.With the development of social economy,in order to further reduce the cost of the real economy,China is constantly exploring the marketization of interest rates,hoping to find a suitable interest rate transmission mechanism that suits the actual situation of our country.In August 2019,after the People’s Bank of China Announcement No.15 was issued,a new LPR quotation mechanism emerged.Compared to the introduction of the LPR quotation mechanism in2013,this reform of the LPR quotation mechanism is more in-depth,more intensive,and more complete.The quoted interest rate in the loan market is calculated by the National Interbank Funding Center and authorized by the People’s Bank of China.The data source is that the quoting bank selects the best quality customers based on the actual situation of the bank and makes quotations based on their interest rates.Financial institutions price loan products based on the quoted interest rate in the loan market.Since the LPR quotation mechanism represents a strong level of marketization and is an important embodiment of marketization,it can fully explain the supply and demand of funds in the credit market.Financial institutions use the LPR quotation mechanism to price their loan products,which can further promote the formation of market-oriented loan interest rates and accelerate the transmission speed of market interest rates to credit interest rates.Therefore,in order to achieve market-oriented interest rates that are suitable for China’s national conditions,find ways to stabilize the financial market,and further explore the impact of LPR formation mechanism reform on China’s financial market,it is crucial to study the impact of LPR pricing mechanism reform on China’s commercial banks.Banks are an indispensable part of the financial market,Therefore,studying the impact of LPR pricing mechanism reform on China’s commercial banks has important theoretical and practical significance.With the further development of the reform of the quoted interest rate(LPR)mechanism in the loan market,the policy environment faced by commercial banks has changed,which has had many impacts on their profitability and self-development.Therefore,based on the background of the reform of the quoted interest rate mechanism in the loan market,this article analyzes its impact on the profitability of commercial banks.Firstly,this article introduces domestic and foreign literature on the impact of LPR pricing mechanism reform on commercial banks’ profitability,and briefly summarizes and elaborates different perspectives on the impact of LPR pricing mechanism reform on commercial banks’ profitability.Through sorting out the literature,it is found that theoretical research on the impact of LPR pricing mechanism reform on commercial banks’ profitability accounts for the majority,while empirical research is relatively small.Therefore,based on theoretical analysis,this article selects the dual difference method to deeply study the impact of LPR pricing mechanism reform on commercial banks’ profitability.This study can enrich theoretical and empirical research on LPR pricing mechanism reform,and has certain research value in both theoretical and practical significance.This paper takes the unbalanced panel data of 108 commercial banks from2011-2021 as the sample,conducts data processing by the propensity score matching(PSM)method to make the data meet the balanced requirements,and then uses the double difference(DID)method to establish a model to empirically test the impact of LPR pricing mechanism reform on the profitability of commercial banks.Through empirical analysis,it is shown that in the selection of research background,that is,in the context of the quoted interest rate mechanism in the loan market,the impact of the LPR pricing mechanism on the profitability of commercial banks is studied.The results show that the reform of the LPR pricing mechanism can improve the profitability of commercial banks,and after the reform,it has significant effects on improving the level of asset liability management and reducing the cost of debt for commercial banks,in fact,commercial banks have improved their operational effectiveness by strengthening their pricing capabilities for loan products,which means further market-oriented reform of interest rates.Meanwhile,the reform of the LPR pricing mechanism can also enhance the coordination role of interest rate leverage,achieve secondary allocation of financial resources,enable financial resources to play a greater role in key areas,create a good business environment,and assist in stable,healthy,and sustainable economic development.Finally,based on the above theoretical analysis and empirical research results,this article proposes that in the external environment where the LPR pricing mechanism reform is being promoted,commercial banks should continue to strengthen their pricing capabilities,continue to do a good job in risk management,promote diversified business development,provide high-quality inclusive financial services,achieve all-round leapfrog development and transformation,and ensure the stable development of the financial market.