Chinese Banking Industry Trends Discussed by China's Economy & Policy21 May 2012 • by Natalie Aster
The Chinese government has determined that interest rate liberalization and improvements in the RMB exchange rate formation mechanism will be the focus of financial system reform. Zhou Xiaochuan, the Central Bank governor, has also pointed out in his recently published paper that the conditions for further advancing interest rate liberalization have basically been met. This paper will explore new opportunities and challenges for financial institutions in the banking industry resulting from the liberalization of interest rates.
According to the article “Banking Reform Under the Condition of Interest Rate Liberalization” by China's Economy & Policy-Gateway International Group (China's Economy & Policy), the process of interest rate liberalization is closely related to banking business structure and deposit and loan rate spreads, which will become narrower after interest rates are liberalized, directly affecting bank profits. As a result, banks have been working to develop a model allowing them to maintain their competitiveness with interest rate deregulation.
In the European and the United States markets, interest income makes up a relatively small proportion of revenue while intermediate business income acts as an important pillar. This structure can more effectively resist the risks caused by interest rate changes. But in China, banks earn most of their income from interest, making up 70 to 80% of the total. The capacity for risk prevention is relatively low, so in recent years the banking industry has focused more on developing intermediate business revenue.
Banking Reform Under the Condition of Interest Rate Liberalization
Published: April, 2012
Price: US$ 200,00
In 2011, intermediate business revenue grew sharply in China, with a maximum growth rate of about 90% according to the 2011 Annual Report of listed banks. Despite this, there is still a big difference between the business structures of the banking industry in China and in western developed countries. Furthermore, investigations show that consulting fee income has contributed significantly to this growth in intermediate business revenues. The growth rate of consulting fee income exceeds that of handling charges and commission expenses in nearly half of the listed banks.
More information can be found in the article “Banking Reform Under the Condition of Interest Rate Liberalization” by China's Economy & Policy-Gateway International Group.
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