Research On The Impact Of LPR Reform On The Profitability Of Small And Medium Sized Commercial Banks In China

General Secretary Xi once stressed that "finance is an important core competitiveness of the country,financial security is an important part of national security,and financial system is an important basic system in the development of economic and social development".Finance is an important part of the modern economy,while banks are the core of China’s financial system,which undertakes important economic functions such as financing,and is the necessary support for the vigorous development of the real economy.However,with the continuous development of China’s economy,banks themselves are also faced with many challenges such as the Internet financial shock,the market-oriented reform of interest rates,and so on.The People’s Bank of China’s Announcement No.15 issued by the People’s Bank of China on August 17,2019 is a major reform of the banking system.As a landmark event in the process of market-oriented interest rates,it has brought a significant impact on China’s commercial banks,The profitability of small and medium-sized commercial banks has also been greatly affected in this reform.Small and medium-sized commercial banks are an important part of China’s banking system.They play an indispensable role in solving the problem of "difficult and expensive financing" of small and medium-sized enterprises.The purpose of this reform is to increase financial support for small and medium-sized enterprises.Studying the impact of this reform on the profitability of small and medium-sized commercial banks will help the government to understand the policy effect of this reform more comprehensively at the policy level,And the impact on the national small and medium-sized commercial banks in the process of policy implementation and the financial risks that may be caused,providing reference suggestions for the continuous improvement of the interest rate marketization mechanism,helping the small and medium-sized commercial banks better understand the impact of the reform on themselves at the bank level,and providing reference for how to respond to and improve their profitability.Therefore,based on the financial repression theory,financial deepening theory,financial restraint theory and financial intermediation theory,and on the basis of sorting out the mechanism that the LPR reform may affect the profitability of small and medium-sized commercial banks,this paper selects 29 banks as the balance panel data,taking the commercial banks in the mainland of China from 2018 to 2021 as the research object,and takes the release of the Announcement No.15 of the People’s Bank of China as a quasi-natural experiment,The DID double difference model is established to explore the specific impact of LPR reform on the profitability of small and medium-sized commercial banks.The empirical results show that:(1)The LPR reform has reduced the profitability of small commercial banks.(2)The mechanism test shows that the LPR reform will reduce the profitability of the traditional loan business of small and medium-sized commercial banks,which is mainly reflected in the decline of the rate of return on interest-bearing assets,and the ability to generate income through intermediary business does not increase but decreases because of the LPR reform;At the same time,the LPR reform increases the operating costs of small and medium-sized commercial banks through the market competition mechanism.This shows that LPR reform has led to the decline of profitability of small and medium-sized commercial banks at both ends of income and cost.(3)From the perspective of bank heterogeneity,the regression of grouping based on whether it is a quotation bank and the strength of intermediary business shows that the LPR reform has a more significant effect on the profitability of non-quotation banks and small and medium-sized commercial banks with weak intermediary business capabilities.(4)Further analysis shows that the loan scale and loan quality of small and medium-sized commercial banks have been improved.Finally,a series of robustness test results show that the empirical conclusion of this paper is still valid.