China’s Major Banks Cut Deposit Rates to Protect Profitability

China’s major banks made a coordinated cut in deposit rates for the third time in a year, as lenders move to protect business profitability amid government policies aimed to boost consumption and demand.

(Bloomberg) — China’s major banks made a coordinated cut in deposit rates for the third time in a year, as lenders move to protect business profitability amid government policies aimed to boost consumption and demand.

State-controlled banking giants Industrial & Commercial Bank of China Ltd., Bank of China Ltd, and Agricultural Bank of China Ltd. were among the lenders who cut rates for customers, according to online statements. The one-year annualized rate for deposits was lowered by 10 basis points to 1.55%, while the five-year rate was cut by 25 basis points to 2.25%. 

China’s state-owned banks are attempting to protect their profit margins while at the same time heeding government directives to shore up support to the world’s second-largest economy. China’s central bank has slashed interest rates on one-year loans by the steepest amount in three years, and also approved a rate cut on existing mortgages — all moves that would put downward pressure on earnings from banks’ lending businesses. 

The government also allowed its largest cities to cut down payments for homebuyers. The nationwide minimum down payment will be uniformly set at 20% for first-time buyers and 30% for second-time purchasers, according to a joint statement from the People’s Bank of China and National Administration of Financial Regulation on Thursday. Mortgage-rate cuts will be negotiated between banks and customers. Both policies go into effect Sept. 25.

The five largest state-owned banks in China all recently reported earnings for the first six months of 2023. The lenders saw modest profit growth, weighed down by shrinking margins.

At least 11 banks in China have slashed their deposits rates, according to local media. The move follows similar rate reductions in June and last September.

Lowering deposit rates may give banks more room to provide better terms on corporate and home loans. It could also encourage households to shift away from bank deposits toward other investments and consumption. Chinese households increased the share of their income that they save during the pandemic, and shifted their financial assets toward bank deposits, hitting the performance of funds that buy stocks and bonds on behalf of households.

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