An Empirical Analysis of Non-Interest Income's Effect on Commercial Bank Performance

Abstract

The share of non-interest income in commercial banks' operating revenue has steadily risen, dramatically affecting their overall operational performance. Using panel data for sixteen Chinese listed commercial banks from 2007 to 2013, variable intercept and variable coefficient models were constructed, accounting for variables including macroeconomic growth rate. The impact of non-interest revenue on the performance of commercial banks was empirically investigated, together with the quantity of bank assets and the cost-to-income ratio. The study results indicate a sizeable negative association with operational costs and a substantial positive correlation with total bank assets, macroeconomic growth, and commercial bank performance. However, the effect of non-interest income on performance differs depending on the kind of commercial bank. Central state-owned commercial banks' non-interest revenue and performance are favorably correlated; nevertheless, urban commercial banks' non-interest revenue and performance are negatively correlated. Therefore, it is recommended that Chinese commercial banks formulate differentiated development strategies based on their characteristics to enhance overall profitability.