Some smaller Chinese lenders cut interest rates for time deposits over the weekend, following a similar move by their larger rivals last year, after several lending rate reductions by policymakers started to squeeze their margins.
Rural lenders in provinces including Henan and Hubei lowered deposit rates by as much as 45 basis points on some tenors, according to their announcements.
After the adjustment, these lenders would pay an annual 1.9 percent for one-year deposits, down from the previous 2.25 percent.
Photo: Reuters
Chinese banks are facing mounting pressure to maintain profitability at a time when the authorities are ramping up efforts to boost the world’s second-largest economy.
The People’s Bank of China (PBOC) unexpectedly lowered the reserve requirement ratio late last month in a move that would give lenders more cash to disburse loans and drive down their funding costs.
While China’s economic activity is rebounding this year after lifting COVID-19 restrictions — with banks extending a record amount of new loans in January — analysts are cautious about the outlook for the sector.
State-owned banks posted a 13 percent decline in pre-provision operating profit, which is income before accounting for funds set aside for bad debts, in the final three months of last year — the worst quarter since 2010, Jefferies Financial Group Inc said.
Most of the banks also reported deteriorating net interest margins, a measure of profitability that would likely fall further this year.
China’s commercial banks have had some leeway in setting their own rates since the central bank scrapped direct control in 2005.
However, the PBOC maintains substantial sway by setting a ceiling and floor for rates through the interest rate self-disciplinary body.
The country’s benchmark one-year deposit rate for household savings is 1.5 percent. Smaller banks still pay well above their larger rivals and the benchmark after the latest adjustment.
More coordinated efforts are needed to curb disorderly competition for deposits and strengthen the industry’s risk management, as margin pressure is “tremendous,” Everbright Securities Co (光大證券) analyst Wang Yifeng (王一峰) said in a note to clients on Sunday.
China’s biggest banks in September last year lowered their benchmark deposit rates across the board for the first time since 2015, a move designed to help them boost lending to shore up the economy battered by COVID-19 restrictions and a deepening property crisis.
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