Internet Finance, Net Interest Margin And Noninterest Activities In China’S Banking Sector

Using data from 133 Chinese commercial banks from 2003 to 2015, we examine the links among Internet finance, net interest margin and noninterest activities. Four main findings emerge. First, the net interest margin exerts significantly negative impacts on the noninterest activities through incentive distortion, cross-subsidization and resource restriction effects. The incentive distortion effect plays a stronger role, while the cross-subsidization and resource restriction effects play weaker roles. Second, Internet finance significantly promotes the development of noninterest activities, meaning that the technology spillover effect of Internet finance is stronger than the customer loss effect in China. Third, Internet finance strengthens the negative effects of the net interest margin on fee and commission activities but weakens the negative effects of the net interest margin on other noninterest activities. Finally, we find that the effects of the net interest margin on noninterest activities are stronger in state-owned banks than in non-state-owned banks, while the effects of Internet finance on noninterest activities are weaker in state-owned banks.