Bank Interest Rate Margin, Portfolio Composition and Institutional Constraints

30 Pages Posted: 30 Jul 2018

See all articles by Li Xian Liu

Li Xian Liu

James Cook University

Milind Sathye

University of Canberra - School of Accounting, Banking and Finance; University of Canberra - School of Business and Government

Date Written: July 29, 2018

Abstract

The objective of this paper is to empirically determine the factors that impact bank interest margins in China. We use relevant banking data for the period 1998-2015. Importantly, we examine, how the composition of assets and liabilities impacts interest margins. To our knowledge this aspect has not been explored. We also consider the impact of institutional environment and market structure changes.

We found that the market pricing mechanism in interest rate hasn’t taken off yet despite the long-term reform by the Chinese government. Borrowing and lending rate are twisted. Foreign banks incorporated in China and the institutional settings represented by them have yet to exert any positive affect interest rate margins in China.

Keywords: Adjusted Interest Spread, composition of assets and liabilities, financial freedom, government spending

JEL Classification: G20

Suggested Citation

Liu, Li Xian and Sathye, Milind, Bank Interest Rate Margin, Portfolio Composition and Institutional Constraints (July 29, 2018). Available at SSRN: https://ssrn.com/abstract=3221991 or http://dx.doi.org/10.2139/ssrn.3221991

Li Xian Liu (Contact Author)

James Cook University ( email )

Townsville, Queensland 4811
Australia

Milind Sathye

University of Canberra - School of Accounting, Banking and Finance ( email )

Canberra, Australian Capital Territory 2601
Australia

University of Canberra - School of Business and Government

Canberra, ACT 2601
Australia

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