China’s mega banks cut deposit rates further to boost growth

CHINA’S biggest state-owned banks are launching a third round of deposit rate cuts in a year, as lenders work to maintain profitability amid shrinking margins and government policies aimed at boosting consumption and demand.

Industrial & Commercial Bank of China said it will lower deposit rates as much as 25 basis points on some tenors starting Dec 22. After the adjustment, the lender will pay an annual 1.45 per cent for one-year deposits, down from 1.55 per cent, and 1.65 per cent on two-year deposit, down from 1.85 per cent. It will pay 1.95 per cent and 2 per cent on three-year and five-year deposits, down from 2.2 per cent and 2.25 per cent, respectively.

China’s escalating push to have its banking behemoths backstop struggling property firms is adding to a maelstrom of woes for the US$57 trillion sector. Banks’ net interest margins slumped to a record low of 1.73 per cent as of September, data showed. That’s below a 1.8 per cent threshold regarded as necessary to maintain reasonable profitability.

Bad loans meantime have hit a new high, and a revenue growth streak since 2017 for some of the nation’s largest state banks may snap this year.

Economic data released for November showed China’s economic recovery remains under pressure from weak demand and a lingering property crisis. 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 towards other investments and consumption.

Chinese households increased the share of their income that they save during the pandemic, and shifted their financial assets towards bank deposits, hitting the performance of funds that buy stocks and bonds on behalf of households. BLOOMBERG