Chinese banks, including major state lenders, have decided to lower interest rates on a range of yuan deposits in order to safeguard their profitability. This move comes after Beijing announced mortgage-rate cuts with the aim of boosting the property market.
Leading banks such as Industrial & Commercial Bank of China, Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of Communications have made coordinated rate cuts on deposit accounts. According to the banks’ online statements, the rate on one-year time deposits has been reduced by 10 basis points to 1.55%, the two-year rate by 20 basis points to 1.85%, and the rates on three- and five-year deposits have been trimmed by 25 basis points to 2.2% and 2.25% respectively.
Notably, these deposit rate cuts are the third action of its kind in a year, and they are greater in magnitude compared to the cuts in June and September last year. The Chinese banks are currently facing difficulties due to shrinking profit margins, as they have been tasked by Beijing to support the country’s struggling economy.
In response to this challenging situation, China’s central bank has recently announced measures to stimulate the property market. The minimum down-payment requirements for first- and second-time home buyers will be lowered, and rates on existing mortgages will be reduced. These efforts are aimed at resolving the enduring property slump.
To further alleviate pressure from the upcoming mortgage-rate cuts and restore their narrowing profit margins, Chinese lenders have taken the initiative to lower deposit rates. In addition, this step is also intended to encourage Chinese households to increase their consumption.
It is anticipated that with Beijing’s latest property support, rates on existing mortgages for first-time home buyers will decline by an average of 80 basis points. This stands to benefit over 40 million borrowers, who collectively hold loans worth 25 trillion yuan ($3.444 trillion), according to the state-run Shanghai Securities Times, citing insiders.