Chinese banks cut deposit rates to relieve squeezed margins

Five of China's major state-owned banks on Thursday cut deposit rates to cushion a hit to their already record low margins after this week's surprise lowering of lending benchmarks to bolster stuttering economic growth.

Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China, China Construction Bank, Bank of China and Bank of Communications cut deposit rates by 5 to 20 basis points, according to statements on their websites.

It marks the first broad reduction in deposit rates by Chinese banks since December last year. There were three cuts in 2023. Prior to that, Chinese lenders had broad cuts to deposit rates in late 2022, their first such move since 2015.

More banks will likely follow the big state-owned lenders with deposit rate cuts.

The cuts come as commercial banks' net interest margins — a key gauge of profitability — narrowed to a record low of 1.54% at the end of March this year.

China surprised markets by cutting major short and long-term interest rates on Monday to bolster growth in a struggling economy.

That was followed by another surprise on Thursday when the central bank conducted an unscheduled lending operation at steeply lower rates, as authorities sought to shore up the faltering economy with more monetary stimulus.

Reducing deposit rates would help lower funding costs for banks at a time when they are under pressure to support economic growth amid a property crisis, weak loan demand and record low interest margins.

"The cuts to deposit rates will enable banks to have more room to implement lending rate cuts, otherwise banks will lack motivation to do that given their enormous profit margin pressure," said Nie Wen, an economist at Shanghai Hwabao Trust.

Smaller banks will likely follow suit