FILE PHOTO – A man stands on a bank of the Huangpu River in Pudong, amid the lockdown in the Pudong area to curb the spread of the coronavirus disease (COVID-19) in Shanghai, China, March 28, 2022. REUTERS/Aly Song
SHANGHAI, April 24 – Some Chinese state banks, such as the Bank of China and the Bank of Communications, will lower deposit rate caps on Monday and join smaller lenders, sources told Reuters.
The planned cuts come a week after regulators encouraged smaller banks to lower the cap on their deposit rates. The moves also coincide with China’s reduction in bank reserve requirements, which goes into effect on Monday.
The Bank of China (601988.SS) will cut rates on term deposits with maturities of 2-3 years by about 10 basis points, according to two bank sources. Bank of Communications (601328.SS) will take similar steps, another source said.
The Bank of China and the Bank of Communications could not be immediately reached for comment outside of working hours.
It wasn’t immediately clear whether other state-owned banks, including the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Agricultural Bank of China, will also cut deposit rates, but the sources say state-owned banks will Lenders usually proceed jointly with the interest rate moves.
Beijing has repeatedly urged banks to lower borrowing costs for smaller businesses in an economy hit by COVID-19 outbreaks, the aftermath of the Ukraine crisis and capital outflows sparked by US monetary tightening.
To encourage banks to lend more, the PBOC has announced that it will cut the reserve requirement ratio (RRR) for all banks by 25 basis points, effective April 25. read more
Rocky Fan, an economist at Guolian Securities, said lowering deposit rates could encourage banks to lower lending rates by lowering their own borrowing costs.
“A key reason why banks are reluctant to lower lending rates now is that it would hurt their margins.”
Lower deposit rates are also conducive to using money more efficiently and will benefit consumption and investment, Fan added.
In mid-April, the Interest Rate Self-Discipline Mechanism, a top regulator overseen by the People’s Bank of China, asked smaller lenders to lower deposit limits on term deposits by about 10 basis points, sources told Reuters.
Banks like Industrial Bank and China Zheshang Bank have already made the adjustment, according to direct sources.
Reporting by Samuel Shen, Kevin Huang and Ryan Woo Editing by Raissa Kasolowsky and Emelia Sithole-Matarise