China’s biggest banks lower deposit rates for third time in 2023 with eye on improving profitability

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A Bank of China branch in Beijing’s central business district. The bank is among lenders cutting deposit rates on some of their products by as much as 25 basis points. Photo: EPA-EFE

Yuke Xiein Beijing

Published: 7:30pm, 22 Dec 2023

China’s largest state-owned banks are lowering their deposit rates for the third time in 2023, in their latest effort to ease the pressure on their net interest margins (NIM) and to improve profitability.

The NIM is the amount of money that a bank earns in interest on loans relative to the amount it pays on deposits. It is an important gauge of a bank’s profitability. The Industrial and Commercial Bank of China, China Construction Bank, Agriculture Bank of China, Bank of China and Bank of Communications will cut deposit rates on some of their products by as much as 25 basis points, the lenders said separately on Friday.

“Lower deposit rates should help alleviate pressures on banks’ NIMs and lay the groundwork for the PBOC [People’s Bank of China] to cut its policy lending rates [Open market operation and medium-term lending facility] in January, which have been left unchanged for the past four months,” said analysts at Japanese investment bank Nomura.

“If these cuts materialise, it would signal Beijing has become increasingly concerned about the downward pressure on growth, lending support to our view of another growth dip. The lasting disinflationary pressures and a sharp reversal of US rates have lowered the hurdle for the PBOC to cut rates.”

Chinese banks’ profitability has come under pressure over the past year after authorities urged them to lower lending rates to support the country’s struggling property developers and to boost the real economy. NIMs slumped to a record low of 1.73 per cent in September, below the 1.8 per cent level that is deemed necessary to keep the banks reasonably profitable.

After Friday’s adjustments, the banks will pay an annual interest of 1.45 per cent on one-year time deposits, down from 1.55 per cent. The rates for two year, three year and five-year products are now 1.65, 1.95 and 2 per cent, respectively, down from 1.85, 2.2 and 2.25 per cent.