Chinese megabanks cut deposit rates to boost economy by Bloomberg

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(Bloomberg) — China’s largest state-owned banks have cut interest rates on some consumer deposits in response to the government’s appeal for help curbing the world’s second-largest economy.

Industrial & Commercial Bank of China (OTC:) Ltd., China Construction Bank (OTC:) Corp., Agricultural Bank of China (OTC:) Ltd. and Bank of Communications Co. cut two-year, three-year and five-year annual rates on certificates of deposit and other types by 10 basis points. After the reduction, the 2-year CD rate stands at 2.6%.

Earlier this month, Chinese authorities urged banks to cut premiums offered to savers above the standard deposit rate by 10 basis points for all maturities. While not required, lenders following the request will raise their scores when the People’s Bank of China conducts its quarterly macroprudential review, famous people said.

China’s economic outlook has deteriorated in recent weeks due to Covid restrictions in most of its major metropolitan areas and a now-month-long lockdown in business center Shanghai. Economists estimate that growth will slow to 5% by 2022, below the government’s target of about 5.5%.

The move will cut borrowing costs at banks as policymakers have again called on the financial sector to help millions of businesses grappling with lockdowns aimed at containing the highly contagious Omicron strain.

The PBOC has refrained from cutting rates on one-year policy loans it provides to commercial banks, disappointing analysts who had expected a cut. By reducing how much they pay on deposits, banks could charge less for loans, especially to smaller companies, while leaving their margins unchanged.

China’s largest banks can pay up to 50 basis points above benchmark rates for term deposits, while smaller banks pay 75 basis points more.

China’s commercial banks have had some leeway in setting their own rates since the central bank abolished direct control in 2005. However, the PBOC maintains considerable thrust by setting a cap and floor for rates through the self-disciplined interest rate body.

The latest move could hit Chinese households further as they struggled with declining wealth amid a slump in stock markets, real estate and other asset management products.

©2022 Bloomberg LP



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