Five of China’s major state-owned banks announced on Thursday that they would cut deposit rates, following the country’s unexpected reduction of benchmark lending rates to support growth in a sluggish economy. Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (AgBank), China Construction Bank, Bank of China, and Bank of Communications are implementing cuts ranging from 5 to 20 basis points (bps), as per statements on their websites.
This marks the first broad reduction in deposit rates by Chinese banks since December last year, following three cuts in 2023. More banks are expected to follow suit after China reduced major short and long-term interest rates by 10 basis points earlier this week.
Lowering deposit rates aims to reduce funding costs for banks, which are under pressure to support economic growth amidst a property crisis, weak loan demand, and record low interest margins. It is also hoped that lower returns on savings will encourage consumers to spend more.
ICBC, for instance, cut its demand deposit rate by 5 basis points to 0.15% and the one-year deposit rate by 10 bps to 1.35%. The bank also reduced rates on deposits of two years or more by 20 basis points to between 1.45% and 1.8%, according to its website.
These cuts are likely to impact lenders’ profit margins at a time when the net interest margin for commercial banks in China, a key profitability gauge, narrowed to a record low of 1.54% at the end of March this year, according to official data.
By reducing deposit rates, Chinese banks aim to stimulate economic activity and consumer spending, thereby supporting the broader economic recovery efforts in the face of ongoing financial challenges.
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