Interest Margins, Lending Rates and Bank Productivity Among Chinese Provinces

40 Pages Posted: 7 May 2022

See all articles by Enzo Dia

Enzo Dia

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS); Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Lunan Jiang

Henan University

Lorenzo Menna

Banco de Mexico

lin zhang

Henan University

Abstract

We document a substantial dispersion of interest margins charged by commercial banks across Chinese provinces. As our empirical study provides evidence that resource costs are the primary drivers of Chinese bank interest margins, we build a parsimonious dynamic stochastic general equilibrium model that captures this feature. Our analysis suggests that productivity differentials in the banking industry among Chinese provinces are substantial. Banks in less developed provinces adopt more labor-intensive technologies that enable them to smooth the impact of productivity shocks. The adoption of a common nationwide banking technology would cause substantial increases in financial costs and amplify the volatility of macroeconomic fluctuations across provinces.

Keywords: Interest margins, resource costs, Chinese economy, heterogeneous regions

Suggested Citation

Dia, Enzo and Jiang, Lunan and Menna, Lorenzo and zhang, lin, Interest Margins, Lending Rates and Bank Productivity Among Chinese Provinces. Available at SSRN: https://ssrn.com/abstract=4102968 or http://dx.doi.org/10.2139/ssrn.4102968

Enzo Dia

Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Lunan Jiang

Henan University ( email )

Lorenzo Menna

Banco de Mexico ( email )

Ave Cinco e Mayo 1
Col. Centro
Mexico City, Mexico DF 06059
Mexico

Lin Zhang (Contact Author)

Henan University ( email )

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