An analysis of non-interest income and its Impact on the profitability: a case study Of Chinese commercial banks

Abstract

In the context of accelerated global economic integration and the profound restructuring of China’s economy, Chinese commercial banks are confronted with multiple challenges, including interest rate liberalization, the rise of financial technology, and increasingly stringent regulatory requirements. The traditional profit model, reliant on the interest rate spread between deposits and loans—has become increasingly unsustainable. As interest rates are liberalized, banks’ net interest margins have steadily narrowed, squeezing out profit space. Simultaneously, fintech innovations have disrupted the conventional banking landscape, intensifying competition, while tighter regulations require banks to continually adjust their operational strategies. In response, the development of non-interest income has emerged as a critical pathway for banks to transform and adapt. Drawing on data from 37 listed Chinese commercial banks between 2014 and 2024, this study adopts a comprehensive mixed-methods approach to analyze the impact of non-interest income diversification on bank profitability and to explore practical enhancement strategies. The qualitative analysis includes in-depth case studies of representative banks, while the quantitative analysis employs econometric models based on a large-scale dataset. A multidimensional evaluation index system is constructed to assess a bank's profitability, incorporating both financial and operational indicators. Empirical testing using methods such as factor analysis reveals that non-interest income diversification exerts a significant positive impact on profitability. Moreover, digitalization level, risk control capability, and income synergy are found to play significant positive moderating roles in this relationship, while asset allocation optimization exhibits a partial mediating effect. Case studies of China Merchants Bank, Khan Bank (Mongolia), and JPMorgan Chase further validate the theoretical findings and highlight variations in non-interest income management strategies across different economic contexts and institutional scales. China Merchants Bank demonstrates strong performance in digital finance; Khan Bank leverages regional-specific strategies; and JPMorgan Chase exhibits advanced diversification and risk management practices.From this, it can be concluded that not only Chinese but also Mongolian commercial banks have the potential to increase their non-interest income to levels similar to those in the United States. In addition, the study conducts a cross-regional comparative analysis of nine representative banks from the United States, Europe, and Asia, revealing significant differences in income structure, digital capabilities, and risk control mechanisms under varying economic conditions. This international benchmarking provides Chinese commercial banks with a multidimensional reference for aligning with global best practices. Based on these insights, this study proposes strategic recommendations for Chinese commercial banks at the corporate, business, and functional levels. These include optimizing income structures by learning from international best practices, accelerating the internationalization process, advancing digital transformation, and strengthening risk management systems. These measures aim to enhance profitability, improve market competitiveness, and support sustainable development in an increasingly complex financial environment.