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Has Internet Finance Decreased the Profitability of Commercial Banks?: Evidence from China

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  • Zhongfei Chen
  • Kexin Li
  • Ling-Yun He

Abstract

This paper explores the popularity of internet finance and its potential shocks to the business of traditional commercial banking in China. Using data on 200 commercial banks in China during the period 2011 to 2016, this paper investigates whether internet finance, measured by P2P (peer-to-peer lending) lending and third-party payment, has a negative impact on the profitability of commercial banks. It concludes that P2P lending and third-party payment has significant negative influence on the profitability of loans and deposits at China’s commercial banks. By intensifying competition, the development of internet finance has decreased the interest income of loans, increased the interest cost of deposits, lowered the growth rate of loans and deposit, and brought about more risk. City and rural banks and unlisted banks are more vulnerable to internet finance than large government-owned and joint-stock banks.

Suggested Citation

  • Zhongfei Chen & Kexin Li & Ling-Yun He, 2020. "Has Internet Finance Decreased the Profitability of Commercial Banks?: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(13), pages 3015-3032, October.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:13:p:3015-3032
    DOI: 10.1080/1540496X.2019.1624159
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    Cited by:

    1. Liu, Ziqiang & Feng, Qiushuo & Li, Hongyi, 2024. "Digital finance, bank competition shocks and operational efficiency of local commercial banks in Western China," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    2. Xin, Xinyi & Zhang, Anquan & Liu, Lu, 2024. "Study on the influence of Internet finance on urban household savings rate: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 90(C), pages 45-61.
    3. Wen Yang & Chien-Chi Chu & Jing Yang & Xinyu Ye, 2023. "The Impact of Internet Finance on the Profit Efficiency of Commercial Banks: Theory and Evidence From China," SAGE Open, , vol. 13(1), pages 21582440231, March.

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