Chinese banks are poised to reduce interest rates on an estimated 300 trillion yuan ($42.3 trillion) in deposits, potentially starting this week, as ongoing stimulus measures strain their profitability, according to sources familiar with the matter.
Leading institutions, including Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., are expected to follow guidance from the central bank’s interest rate self-regulatory mechanism, the sources said. The adjustment will likely impact various deposit products, with rates on one-year time deposits forecasted to drop by at least 20 basis points, while longer-term deposit rates could decrease by at least 25 basis points. These plans are still being finalized, they noted.
If confirmed, this would mark the second rate reduction this year, following a similar move in July. The People’s Bank of China (PBOC) has not yet commented on the potential cuts.
This rate adjustment follows a series of aggressive policy actions aimed at stabilizing China’s slowing economy, including reductions to key policy rates and the borrowing costs on over $5.3 trillion in outstanding mortgages. Last month, the PBOC executed its largest-ever cut to the interest rate on one-year policy loans. PBOC Governor Pan Gongsheng indicated that a reduction in deposit rates would follow.
While Chinese banks have enjoyed some autonomy in setting interest rates since 2005, when the central bank lifted direct controls, the PBOC still influences the range by setting caps and floors through the interest rate self-disciplinary body.
Chinese banks implemented broad deposit rate cuts in late 2022—the first such cuts since 2015—following government pressure to enhance lending. These cuts continued with three additional reductions throughout the past year.
Despite these measures, banks’ profitability remains under pressure, with net interest margins declining to a record low of 1.54% by June, well below the 1.8% level typically needed to sustain healthy profits.
In a related development, Bloomberg reported that China is considering injecting up to 1 trillion yuan into its largest state-owned banks to bolster their capacity to support the economy.
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