Research on the Impact of Interest Rate Liberalization on the Profitability of China’s Listed Small and Medium Sized Commercial Banks

Abstract

In 1996, The People's Bank of China (PBOC) established a national treasury bonds market and inter-bank lending market, marking that the official start of China’s interest rateliberalization. After 20 years of orderly developing, reform has entered the key stage. In October 23, 2015, the PBOC announced that it would no longer set the floating ceiling of deposit rate to commercial banks and rural cooperative financial institutions. Release the control of interest rate means that the entire banking industry will fall into a more intense competition, and the traditional mode of operation will suffer from more threats and challenges. Especially in China's small and mediumsized commercial banks, compared to the large state-owned banks, the capital accumulation is relatively weak, more limited business development, limited customer resources, lack of brand effect, so it is bound to face more difficulties.In empirical research, the article selects 11 listed small and mediumsized banks as the research samples, using panel data model to analyze how the interest rate liberalization impact the profitability of these selected banks. Finally, combining with analysis results, the article proposes some measures to increasing the profit space of small and mediumsized commercial banks under the process of interest rate liberalization.