- Five of China’s largest banks have cut interest rates
- The vote on embattled developer Country Garden is set for Friday
- The central bank lowers the amount that foreign exchange banks must hold as reserves
- Moves as part of broader measures to support the economy
BEIJING, Sept 1 (Portal) – Five of China’s biggest banks cut interest rates on a range of deposits on Friday in a coordinated move to ease pressure on their shrinking margins, as Beijing steps up measures to shore up the country’s flagging economy country strengthened.
China is grappling with a slowdown that has rattled global markets, with the focus now firmly on troubled developer Country Garden’s (2007.HK) deepening debt crisis in a sector that accounts for about a quarter of the economy.
As pressure mounts, Chinese authorities have taken a series of measures to stimulate the economy and revive the crisis-hit real estate market. The steps include easing some lending rules and cutting the amount of foreign currency banks must hold as reserves.
On Thursday, Country Garden pushed back a deadline for creditors to vote on whether to delay payments on a 3.9 billion yuan ($537 million) onshore private bond to 2 p.m. GMT on Friday to give bondholders “ample time” to prepare for the vote.
The vote represents a major hurdle for Country Garden to avoid default. A holder of the developer’s dollar bonds said if the company cannot roll over its domestic debt, it will be unable to service external bondholders.
“This was a slow car crash,” said the bondholder, who asked not to be identified due to the sensitivity of the issue, adding that concerns centered on uncertainty about the overall economy and tensions with Washington.
“Everything they do now will have an impact in five to 10 years.”
Country Garden, China’s largest private developer by revenue, did not immediately respond to Portal’ request for comment.
Tensions in the housing market have increased pressure on Beijing to implement supportive measures and raised concerns about policymakers’ ability to halt a decline in China’s overall economic growth.
China’s new home prices fell for a fourth month in August as the housing debt crisis kept confidence low despite extensive support measures, according to a private survey on Friday.
Deposit interest rates reduced
The central bank said on Friday that it would cut the reserve requirement ratio (RRR) by 200 basis points (bps) to 4% from 6% from September 15. This move is intended to slow the pace of the yuan’s decline.
Lenders that cut mortgage rates on Friday included Industrial and Commercial Bank of China (601398.SS), China Construction Bank Corp (601939.SS) and Agricultural Bank of China (601288.SS), which cut their deposit rates by five to five 25 basis points, individual banks’ websites showed.
Three sources familiar with the matter told Portal on Tuesday that major state-owned banks would cut deposit rates as they prepare to cut interest rates on existing mortgages. This is part of Beijing’s efforts to revive the real estate sector hit by the debt crisis.
Starting September 25, first-time home buyers with mortgages will be able to apply to their banks for a lower interest rate on their existing loans, China’s central bank and financial regulator announced on Thursday.
Two of China’s largest cities, Guangzhou and Shenzhen, also eased mortgage restrictions this week, broadening the definition of home buyers being eligible for discounted loans for first home purchases.
Lenders cut rates on one-year term deposits by 10 basis points (bps) to 1.55%, on two-year term deposits by 20 bps and on three- and five-year term deposits by 25 bps.
The deposit rate cuts are the third such cuts in a year, with the magnitude of the cuts being larger than previous rounds in June and September last year.
Lower deposit rates will partially offset various pressures on banks’ shrinking net interest margins – a key indicator of profitability, said Nicholas Zhu, a banking analyst at Moody’s.
“The impact of cutting the deposit rate is significant considering that nearly three-quarters of Chinese banks’ liabilities are deposits,” Zhu said.
Several mid-sized Chinese banks, including Industrial Bank Co Ltd (601166.SS) and China Bohai Bank Co Ltd (9668.HK), also said they will start raising interest rates on a range of deposits by between 10 and 25 from Friday to lower basis points.
China’s mortgage loans totaled 38.6 trillion yuan ($5.29 trillion) at the end of June, accounting for 17% of banks’ total loan book.
($1 = 7.2633 Chinese Yuan Renminbi)
Reporting by Ziyi Tang, Ryan Woo and Wang Jing, additional reporting by Davide Barbuscia in New York; Edited by Anne Marie Roantree and Lincoln Feast
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