Since the first blog was talking about the windfall profit appeared in the Chinese bank industry, now I will concentrate on the reason why and how this abnormal profit produced.
As my first blog has mentioned that usurious interest margin, high transaction cost, frequently and overwhelmingly growth on financial products conduction has become the root of this windfall profit.
In detail, I will place the main emphasis on the first usurious interest margin. It says that the gap of saving and loan has become the big source of bank’s extravagant profit. For example, the one year time deposit interest rate in 2011 was 3.5%, while the loan rate for 1-3 year was as high as 6.65%. Under this policy, the banks can guarantee a difference of 3% between loan and saving rate, which is what the specialist called “sit-in money”.
In the first three quarters of 2011, the revenue earned from net interest rate margin in the 5 nationalized banks took up 75.7% of the gross, which the other equity banks account for the percent of more than 90%.
In terms of the gain on interest, most banks maintained their robust growth with a year-on-year rises of around 30%. In addition, on Feb.4, 2010, when talked about the reform of Chinese marketization of interest rates, the Vice Chairman of Financial and Economic Committee of People’s Congress, X.L. Wu, pointed out that, in order to carry out the reform steadily, we should leave them to market forces, optimize the allocation of financial resources, meanwhile, the central bank should regulate and control the upper limit of the saving rate and lower limit of the loan rate to supervise the interest rate premium on saving and loans, as the richness interest rate premium has become the important headstream to make the profit in the financial markets.
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