Due to the three functions of cost reduction, disintermediation, and information asymmetry, internet finance continues to impact the traditional banking business in the financial industry, posing a new competitive risk for commercial banks. In developing countries such as China, given the imperfect development of the financial market, the government needs to introduce a series of policies, but new policies will bring the risk of market uncertainty. Due to the double uncertainty of the market and the system in developing countries, commercial banks are caught between competitive and new policy risks. Therefore, exploring the impact of these two risks on the performance of commercial banks is very important to allow commercial banks to discern, resist, and respond to risks. This research uses the data of A-share listed banks for the past 10 years. Empirical research shows that internet finance and interest rate liberalization have a negative impact on bank performance. The liberalization of interest rates further increases the negative impact of internet finance on bank performance.
TopIntroduction
In developing countries, the financial industry is still in infancy, and there are dual uncertainties in the market and institutions, including uncertainties around market competition (competition methods, competition rules, etc.) and policy (policy persistence, policy effectiveness, etc.). These two uncertainties create double risks for a commercial banking entity. In particular, the competitive risk between commercial banks is becoming weaker while the burgeoning competition external to the industry is resulting in a greater impact on commercial banks given the diversification of competitive methods. In particular, the emergence of Internet finance presents tremendous operational risks. With the development of the financial industry and the gradual liberalization of the market, banks are facing the impact of various external competition methods, and the development of Internet finance in particular is having a high impact (Hou et al., 2016; Guo and Shen, 2016). Internet finance breaks down the monopoly position and interest rate solidification of commercial banks for offline payments and uses their characteristics of high efficiency, convenience, and low cost to reduce the profits of traditional commercial banks at the deposit and loan and intermediary business levels, thereby affecting the performance level of commercial banks (Yue and Pin, 2018; Ozili, 2018). In addition, policies are not always perfect and may even mask some risks due to the uncertainty of institutions in developing countries. In China, interest rate liberalization is an important measure that was launched by government during the process of economic restructuring (Tannaa et al., 2017). Its purpose is to gradually establish the market interest rate system and formation mechanism based on the central bank interest rates and money market rates for mediation. Interest rate liberalization is determined by the market supply and demand of financial institutions’ lending rate and deposit rate levels, which enable the market mechanism to play a leading role in the allocation of financial resources and thus promote the development of the market economy (Barrell et al., 2017). However, interest rate liberalization, a policy introduced by the Chinese government in the preliminary stage of financial industry development, holds an initial risk related to uncertainty, and its effectiveness needs to be explored in depth. Therefore, it is highly important to reveal the impact of interest rate liberalization policies on the performance of commercial banks.
Based on the above discussion for the contemporary Chinese financial industry, especially for commercial banks, it is critical to determine how to respond the double risks of interest rate liberalization and Internet finance [Njikam, 2017; Balogun et al., 2016; Dabo,2012]. Furthermore, the dual forces of national policy and market competition have a significant impact on commercial banks. However, the existing research is not very concerned about how bank performance is affected by the impact of Internet finance and the changes in the context of interest rate liberalization. Therefore, exploring the law of performance changes of commercial banks under the dual risk of interest rate liberalization and Internet finance is the focus of this study.