Five of China’s largest state banks lowered interest rates on some deposits on Friday, the third round of such cuts this year, offering the prospect of reduced lending costs at a time when the government is urging banks to support the economy.
Industrial and Commercial Bank of China 601398.SS, Agricultural Bank of China 601288.SS and China Construction Bank 601939.SS were among banks to cut rates for time deposits by as much as 25 basis points (bps), their websites showed.
Banks cut annual interest rates for one-year and two-year time deposits by 10 basis points (bps) and 20 bps to 1.45% and 1.65% respectively, and rates for three-year and five-year time deposits by 25 bps. They cut large-scale certificates of deposit rates even more.
Reuters on Thursday reported major banks’ impending cuts on time deposits citing people with knowledge of the matter.
The cuts are the third this year following rounds in June and September. The latest cuts could help banks’ net interest margins (NIMs) – a profitability gauge – widen 3 bps next year, contributing to 3% of lenders’ 2024 net profit, analysts at broker CICC said in a research note on Friday.
NIMs at China’s major state banks have fallen below the 1.8% threshold that is regarded by authorities as necessary for lenders to maintain sustainable profitability.
The cuts could smoothen the People’s Bank of China’s (PBOC) move toward easing monetary policy, and will drive money into wealth management products and bond funds, potentially pushing treasury yields even lower, Caitong Securities said in a report.
On Friday, 10-year treasury futures CFTc1 jumped as much as 0.13%, hitting a four-month high. The 10-year government bond yields CN10YT=RR, which move inversely to prices, fell as low as 2.610%, the lowest since Sept. 1.
“We expect the PBOC to cut its policy lending rates in January 2024,” said Lu Ting, chief China economist at Nomura. “The lasting disinflationary pressures and a sharp reversal of U.S. rates have lowered the hurdle for the PBOC to cut rates.”
“The PBOC may also deliver a 25bp RRR (reserve requirement ratio) cut in H1 2024 to increase loanable funds to banks, which have shouldered some national services by providing funding to LGFVs (local government financing vehicles) and cash-strapped developers,” said Lu.
Even before Friday’s announcement, expectations of lower deposit rates had triggered a retail rush for higher-yielding fixed-income products.
Last week, JPMorgan Asset Management’s China unit hits its 5 billion yuan ($699.61 million) fundraising target ahead of schedule for an index fund that invests in negotiable certificates of deposit.
(Reuters)
