An Empirical Analysis on Determination Factors of Net Interest Margin of Chinese Commercial Banks

Net interest margin is the main profit resource for Chinese commercial banks,the level of which can reflect their competition status and the extent of market-oriented reform.The paper first raises three hypotheses to explain net interest margin,which are cost-driven,risk compensation and scale effect.Then the paper empirically tests the dominant effect in de-termining the level of net interest margin.The result indicates that the latter two effects are dominant ones.Risk compensa-tion is the most important factor to determine net interest margin,and commercial banks with different scale are influenced by different factors.Under the background of interest rate liberalization,commercial bank should improve their ability to measure various risks and gradually establish net interest margin adjustment mechanism,which will serve as an important ap-proach to respond to fierce competition and environment changes,as well as forge their core competence.