Several major Chinese banks are set to lower their yuan and dollar deposit interest rates soon, the state-owned Securities Times reported Tuesday, citing unnamed sources at the lenders.
Interest rates for all yuan demand deposits will be cut by 5 basis points, while rates for some yuan time deposits will be lowered by 10 basis points, according to the report. Rates for 1-year time deposits of more than $50,000 will be capped at 4.3%, the newspaper said.
Bloomberg reported Tuesday that state-owned lenders including Bank of China, Industrial & Commercial Bank of China and Bank of Communications had been asked by authorities last week to cut rates on a range of products, including demand deposits and three- and five-year time deposits.
The move comes as Chinese banks grapple with diminishing profit margins due to a widening deposit-loan gap. Beijing has also urged lenders to provide more support to the economy as the initial post-Covid reopening boost fades.
China’s deposit-loan gap has grown dramatically since last year to 47.3 trillion yuan ($6.643 trillion) at the end of April, the second-highest level in available data reaching back to 1998, Gao Zhanjun, a researcher at the state-run National Institution for Finance and Development, said in an online article published by Chinese media outlet Caixin.
The year-on-year growth of China’s outstanding yuan deposits outpaced outstanding yuan loans every month from July 2022 to April 2023, except for October 2022, reversing a years-long trend, Gao said.
“Chinese households are the primary force driving this widened gap as they have been saving more, borrowing less and paying off debt early,” Gao said in the article.
China’s central bank, constrained by a diverging policy stance with its U.S. counterpart, has refrained from major policy stimulus despite recent data pointing to a sputtering economic recovery. This has prompted economists to call for more monetary policy support, including lower policy rates and reserve requirement ratios.
Deposit-rate cuts can help lower banks’ costs and encourage consumers to spend more by making parking their cash at banks less attractive, economists say.
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