China’s top lenders slash key rates

In a strategic move to safeguard their profitability following Beijing’s announcement of mortgage-rate reductions aimed at revitalising the property sector, several major Chinese banks, including state-owned giants, have opted to reduce interest rates on various yuan deposits. This coordinated effort to bolster their financial well-being was executed by prominent institutions such as Industrial & Commercial Bank of China, Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of Communications.

The adjustments to deposit rates were executed with precision: the one-year time deposit rate saw a 10 basis point reduction to 1.55%, the two-year rate experienced a 20 basis point decrease to 1.85%, and rates on three- and five-year deposits were trimmed by 25 basis points to 2.2% and 2.25%, respectively, as outlined in the banks’ official online statements.

These deposit rate cuts, implemented on Friday, represent the third such action within a year and notably exceed the reductions observed in June and the preceding September. The rationale behind these moves is rooted in the fact that Chinese banks are grappling with diminishing profit margins, as they grapple with the imperative of bolstering the nation’s sluggish economy.

On the preceding Thursday, China’s central bank, in a bid to counter the prolonged property market downturn, declared its intent to lower the minimum down-payment requirements for both first-time and second-time home buyers. Additionally, it announced reductions in rates applicable to existing mortgages. These measures constitute the latest initiatives taken by authorities to resuscitate the beleaguered property sector.

Notably, the central bank had previously embarked on a bold manoeuvre by implementing the steepest reduction in interest rates on one-year loans witnessed in three years. The decision to lower deposit rates is poised to alleviate the pressure on Chinese lenders arising from the impending mortgage-rate cuts and alleviate the strain on their dwindling profit margins. Moreover, it aims to stimulate greater consumer expenditure among Chinese households.

Analysts predict that Beijing’s renewed support for the property sector is poised to lead to an average 80 basis point reduction in rates for existing mortgages, particularly benefiting the cohort of first-time home buyers. This move has the potential to provide relief to over 40 million borrowers, who collectively carry loans totalling 25 trillion yuan ($3.444 trillion), according to reports citing sources close to regulatory bodies, as published by the state-run Shanghai Securities Times.