China's Big State Banks Cut Rates on Yuan Deposits

China’s biggest banks announced on Thursday that they have lowered interest rates on yuan deposits.

The rate cut news was confirmed on websites of the Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China.

All state banks cut rates on demand deposits by 5 basis points and three-year and five-year time deposits by 15 basis points.

The move could provide relief for the financial sector and wider economy by easing pressure on profit margins and reducing lending costs.

This is the second such cut within a year, with previous action taken in September.

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“The deposit rate cuts will push savings into consumption and investment and ease the pressure on banks’ net interest margins (NIM), opening the door for further monetary stimulus,” Gary Ng, Asia Pacific senior economist of Natixis, said.

He expects a 50 basis points cut in the reserve requirement ratio (RRR) soon to support local government bond issuance.

But additional loan prime rate cuts will only come if economic data or financial risks deteriorate to a level that prevents China from meeting its 5% target, Ng said.

The Chinese economy has been hit by faltering demand at home and abroad. Exports slumped 7.5% year-on-year in May, data from China’s Customs Bureau showed on Wednesday.

PBOC asks lenders to lower USD deposit rates

China cut the RRR in March but has kept its benchmark lending rate unchanged this year, as widening yield differentials with the United States limited the scope for substantial monetary easing.

Major state banks’ net interest margins have shrunk following pressure to lower borrowing cost for individuals and businesses to stimulate the economy, and as credit demand remains subdued.

China’s economy rebounded faster than expected in the first quarter but lost momentum at the beginning of the second, grappling with tumbling exports, a sluggish housing market and a high unemployment ratio.

A regulatory body overseen by the People’s Bank of China has asked the lenders to also lower US dollar deposit rates, four people with direct knowledge of the matter said on Tuesday.

The benchmark CSI Banks Index rose 0.35% in morning trading on Thursday.