Major Chinese banks cut deposit rates as efforts to prop the economy grow

FIVE of China’s biggest banks on Friday (Sep 1) cut interest rates on a range of deposits in a coordinated effort to ease pressure on their shrinking margins as lenders move to lower mortgage rates to prop up a struggling property sector and a faltering economy.

The banks, including Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China cut their deposit rates by between five and 25 basis points, websites from each bank showed.

Three sources familiar with the matter told Reuters on Tuesday that major state banks would cut deposit rates as they prepare to lower interest rates on existing mortgages. These are part of Beijing’s efforts to revive the debt crisis-hit property sector.

Starting from Sep 25, first-time home buyers with mortgages can apply to their banks for a lower interest rate on their existing loans, China’s central bank and financial regulator announced on Thursday.

Two of China’s biggest cities, Guangzhou and Shenzhen, also eased mortgage curbs this week, broadening the definition for home buyers to enjoy preferential loans for first-home purchases.

The moves come as embattled developer Country Garden delays a deadline for creditors to vote on whether to postpone payments for an onshore private bond, according to a document seen by Reuters.

The vote on the 3.9 billion yuan (S$737 million) onshore private bond, which was due to take place on Friday night, is a key hurdle Country Garden will have to overcome as it strives to avoid default amid a spiralling financing crisis and opposition from some creditors.

The company’s mounting woes are the latest to hit the property sector and have sparked fears of financial system contagion at a time when the country is already struggling with a broader economic slowdown.

Country Garden, China’s largest private developer, did not immediately respond to Reuters request for comment.

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Rates cut

The lenders cut rates on one-year time deposits by 10 basis points (bps) to 1.55 per cent, and two-year time deposits by 20 bps and three-year and five-year time deposits by 25 bps.

It is the third time this is being done within a year, with the scale of cuts bigger than those in previous rounds in June and in September last year.

The cuts will partially offset various pressures on banks’ narrowing net interest margins – a key gauge of profitability, said Nicholas Zhu, a banking analyst at Moody’s.

“The impact of the deposit rate cuts is material, given that close to three-quarters of Chinese banks’ liabilities are deposits,” Zhu said.

Several China’s midsized banks, including Industrial Bank and China Bohai Bank, also announced they will start cutting interest rates on a range of deposits from Friday by 10-25 basis points.

China’s mortgage loans totalled 38.6 trillion yuan at the end of June, representing 17 per cent of banks’ total loan books. REUTERS