Does Interest Rate Liberalization Lead to The Narrowing of Commercial Banks’ Interest Margins?

Abstract

Based on the background of China’s interest rate liberalization, this paper empirically investigates the impact of interest rate marketization on China’s commercial banks’ interest margins using a fixed effects model using panel data of 39 commercial banks in China for the last decade from 2013-2022. The results of the study indicate that interest rate liberalization significantly reduces the interest margins of Chinese commercial banks. In the long run, with the deepening of interest rate liberalization, the interest margins of commercial banks tend to narrow. At the end of the paper, suggestions are made in relation to the current situation of interest rate liberalization in China and the research results.