Effect of China’s Commercial Banks’ Diversified Revenue on Performance

Abstract

The reasons of China's commercial banks developing diversified revenue are analyzed from the theories of financial innovation, diversity theory and economies of scope. The overall and packet inspection has been done to disclose the relationship between diversified revenue and Chinas bank performance by the financial data of 14 commercial banks during the period of 1999 to 2009. The results show that there is a stable positive correlation between non-interest income and banks' performance for all of the commercial banks and state-owned banks, while the proportion of non-interest income has a positive impact on banks' performance in the joint-stock banks, yet diversified income structure shows a negative correlation with performance. Meanwhile it reveals that the proportion of non-interest income and diversified revenue have a lagged effect on banks' performance. Finally some suggestions are given to optimize Chinas commercial banks revenue structure.