Title: The impact of higher interest spread on the performance of banks in China

Authors: Ning Ding; Yvette Essounga-Njan

Addresses: Dongbei University of Finance and Economics, Dalian 116025, Liaoning Province, China. ' Fayetteville State University, 1200 Murchison Road, SBE 388, Fayetteville, NC 28301, USA

Abstract: The study analyses how higher interest spread resulting from price control by the Chinese government affects banks' profits in China. It provides in-depth empirical analyses of the determining factors of the banks' profits and discusses how artificially set higher interest spread impacts banks' performance in China. The paper uses a two-step model on the banking industry of China based on the dealership model developed by Ho and Saunders in 1981 and finds the oligopolistic market structure has a negative but not a significant relationship with the banks' profits before 2000. However, the market structure has positive contributions to the banks' profits after 2000 due to the higher interest spread artificially controlled by the government.

Keywords: interest spread; price control; bank performance; financial services; government role; banks profits; banking industry; China; dealership models; oligopolistic market structure.

DOI: 10.1504/IJSS.2012.049426

International Journal of Services and Standards, 2012 Vol.8 No.2, pp.174 - 192

Published online: 27 Dec 2014 *

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