Five of China’s leading banks have collectively initiated a coordinated reduction in interest rates on various deposits, underscoring their commitment to alleviating the strain on their profit margins. This strategic move comes as these lenders embark on a broader initiative to lower mortgage rates, aiming to provide a much-needed boost to a beleaguered real estate sector and an economy facing challenges.
Industrial and Commercial Bank of China, China Construction Bank Corp, and Agricultural Bank of China were among the financial institutions that implemented deposit rate cuts ranging from five to 25 basis points, as per information displayed on their respective websites.
Sources familiar with the matter had informed Reuters earlier in the week that major state-owned banks were poised to reduce deposit rates in preparation for a subsequent decrease in interest rates on existing mortgages. This forms a critical part of Beijing’s multifaceted efforts to revitalize the property sector, which has been grappling with a debt crisis.
Starting September 25, first-time homebuyers with existing mortgages will have the opportunity to apply for lower interest rates on their loans, following an announcement by China’s central bank and financial regulator on Thursday.
Adding to the momentum of these measures, two of China’s most prominent cities, Guangzhou and Shenzhen, recently eased mortgage restrictions, expanding the eligibility criteria for prospective homeowners to access preferential loans for their first property purchases.
These developments unfold against the backdrop of challenges faced by the troubled developer, Country Garden, which has postponed the deadline for creditors to vote on whether to defer payments related to an onshore private bond. A document seen by Reuters indicates that the vote on the 3.9 billion yuan ($535 million) onshore private bond, initially scheduled for a later date, holds significant importance for Country Garden as it endeavors to prevent a default amidst a deepening financial crisis and opposition from certain creditors.
The growing predicament faced by Country Garden is the latest in a series of blows to the property sector, sparking concerns of a potential contagion effect on the financial system, at a time when the nation is already grappling with a broader economic slowdown.
Country Garden, China’s largest private developer, did not issue an immediate response to Reuters’ request for comment.
Interest Rate Adjustments
These leading banks have enacted adjustments to one-year time deposits, reducing them by 10 basis points to 1.55%. Furthermore, they have lowered rates for two-year, three-year, and five-year time deposits by 20, 25, and 25 basis points, respectively.
These deposit rate reductions mark the third such occurrence within the past year, with the magnitude of these cuts surpassing those observed in the preceding rounds conducted in June and September of the previous year.
Nicholas Zhu, a banking analyst at Moody’s, noted that these deposit rate cuts would help counterbalance the various pressures exerted on banks’ narrowing net interest margins, which serve as a pivotal metric for profitability. He stated, “The impact of the deposit rate cut is significant, considering that close to three-quarters of Chinese banks’ liabilities are comprised of deposits.”
In addition to the major banks, several midsized banks in China, including Industrial Bank Co Ltd and China Bohai Bank Co Ltd, have also revealed their intention to commence interest rate reductions on a range of deposits, with cuts spanning from 10 to 25 basis points.
As of the end of June, China’s mortgage loans amounted to 38.6 trillion yuan ($5.29 trillion), accounting for 17% of banks’ total loan portfolios.
