The Impact of Deregulation Trends on the Chinese Banks' Interest Margins

Abstract

In this paper, we examine the impact of deregulation trends and foreign bank entry on the net interest margins of China’s banking sector. By comparing the banks’ net interest margins before and after the banking liberalization, we investigate the impact of the financial deregulation and the presence of foreign banks on the profitability of Chinese banks. The results indicate that the entrance of foreign banks has strong negative effects on the profitability of domestic banks. The credit risk is the major factor to enhance the profitability of the Chinese domestic banks.