BEIJING (Reuters) – China’s largest banks said on Thursday they had cut interest rates on yuan deposits in measures that could ease pressure on profit margins and reduce lending costs, providing some relief to the financial sector and the broader economy.
Industrial and Commercial Bank of China Limited (601398.SS), Agricultural Bank of China (601288.SS), Bank of China Limited (601988.SS) and China Construction Bank Corp. (601939.SS) all cut their rates from Thursday, the locations of each bank showed. .
State-backed banks cut interest rates on demand deposits by 5 basis points and three- and five-year term deposits by 15 basis points.
This is the second such cut in a year, with the previous action taken in September.
“Deposit rate cuts will drive savings into consumption and investment and relieve pressure on banks’ net interest margins (NIM), opening the door for further monetary stimulus,” said Gary Ng, chief economist for Asia Pacific at Natixis.
He expects a 50 basis point cut in the reserve requirement ratio soon to support the issuance of local government bonds. But Ng said further cuts to the benchmark lending rate would only come if economic data or financial risks deteriorated to a level that would prevent China from achieving its 5% target.
China cut its required interest rate in March, but has kept its benchmark lending rate unchanged this year, as widening yield differentials with the United States limit the scope for significant monetary easing.
The net interest margins of the country’s major banks shrank after pressure to reduce the cost of borrowing for individuals and companies to stimulate the economy, and with continued weak demand for credit.
China’s economy rebounded faster than expected in the first quarter but lost momentum at the start of the second quarter, as it grappled with falling exports, a stagnant housing market, and rising unemployment.
Four people with direct knowledge of the matter said on Tuesday that a regulator overseen by the People’s Bank of China has asked lenders to also cut interest rates on US dollar deposits.
The CSI Banks Benchmark Index (.CSI399986) was up 0.35% in morning trade Thursday.
Reporting by the Beijing Newsroom; Editing by Christopher Cushing and Sam Holmes
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