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Analysis of Net Interest Margin Changes in China's Banking Sector against the Backdrop of Interest Rate Liberalization (No 112, 2015)


—Analysis based on 21 Listed Banks

By Zhu Hongming & Lei Wei, Research Team on "Analysis of Listed Banks", Research Institute of Finance of DRC

Research Report No 112, 2015 (Total NO 4797)


China's interest rate liberalization is remarkably accelerated since 2014, arousing general concern from various quarters about the impact of banks' net interest margin (NIM). This paper takes the performance of 21 listed banks to analyze the NIM changes of China's listed banks before the end of 2014 and reasons for such changes. The research findings show that interest rate liberalization does not necessarily lead to banks' narrowed NIM and that banks can reduce to some extent the impact of interest rate liberalization on NIM by optimizing the balance sheet structure. The fact that NIM of China's listed banks in 2014 rose instead of falling is mainly due to the reason that the yield on interest-generating assets increased more than the cost on interest-bearing liabilities. But the central bank's future interest rate cut (especially asymmetric interest rate cut), local governments' debt restructuring, relaxed market admittance and other factors may exert a larger negative influence on NIM of China's banking industry.