China's Big Banks Cut Rates, Prepare to Lower Mortgages

Five of China’s biggest banks cut interest rates on deposits on Friday as lenders prepare to lower mortgage rates.

This action was part of a coordinated move by Beijing to ease pressure on banks’ shrinking margins and revive the debt-laden property sector.

Lenders such as the Industrial and Commercial Bank of China, China Construction Bank Corp and Agricultural Bank of China cut deposit rates by between five and 25 basis points, their websites showed.

Chinese authorities have rolled out a series of measures to spur the economy and revive the crisis-hit property market. The steps include easing some borrowing rules and a cut to the amount of foreign exchange banks must hold as reserves.

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Home prices down, forex RRR cut

China’s new home prices fell for the fourth month in August, according to a private survey on Friday, as the property debt crisis kept confidence at a low ebb despite the string of support measures.

The central bank said on Friday it would cut the foreign exchange reserve requirement ratio (RRR) by 200 basis points to 4% from 6% beginning September 15, a move seen aimed at slowing the pace of yuan declines.

Meanwhile, sources revealed on Tuesday that major state banks would cut deposit rates as they prepare to lower interest rates on existing mortgages.

Starting from September 25, first-time homebuyers with mortgages can apply to their banks for a lower interest rate on their existing loans, China’s central bank and the financial regulator announced on Thursday.

Two of China’s biggest cities, Guangzhou and Shenzhen, also eased mortgage curbs this week, broadening the definition for home buyers to enjoy preferential loans for first-home purchases.

Country Garden seeks to postpone onshore bond payments

The moves come as embattled developer Country Garden delays a deadline for creditors to vote on whether to postpone payments for an onshore private bond, according to a document seen by Reuters.

The vote on the 3.9 billion yuan ($535 million) onshore private bond, now set for Friday afternoon, is a key hurdle Country Garden will have to overcome as it strives to avoid default amid a spiralling financing crisis and opposition from some creditors.

The company’s mounting woes are the latest to hit the property sector and have sparked fears of massive debts in the sector and local governments spreading to the financial system at a time when the country is struggling with a broader economic slowdown.

Country Garden is China’s largest private developer, but did not immediately respond to a request for comment.

Biggest rate cuts so far

Banks cut rates on one-year time deposits by 10 basis points (bps) to 1.55 per cent, and two-year time deposits by 20 bps and three-year and five-year time deposits by 25 bps.

The deposit rate cuts are the third within a year, with the scale of cuts bigger than previous rounds in June and in September last year.

The cut will partially offset various pressures on banks’ narrowing net interest margins – a key gauge of profitability, Nicholas Zhu, a banking analyst at Moody’s, said.

“The impact of the deposit rate cut is material, given that close to three-quarters of Chinese banks’ liabilities are deposits,” Zhu said.

Several China’s midsized banks, including Industrial Bank Co Ltd and China Bohai Bank Co Ltd, also announced they will start cutting interest rates on a range of deposits from Friday by 10-25 basis points.

China’s mortgage loans totalled 38.6 trillion yuan ($5.29 trillion) at the end of June, representing 17% of banks’ total loans.