China smaller banks cut deposit rates to ease margin pressure

BLOOMBERG

Some smaller Chinese lenders cut interest rates for time deposits over the weekend, following a similar move by their larger rivals last year, after several lending rate reductions by policy makers started to squeeze their margins.
Rural lenders in provinces including Henan and Hubei lowered deposit rates by as much as 45 basis points on some tenors, according to their announcements. After the adjustment, these lenders will pay an annual 1.9% for one-year deposits, down from the previous 2.25%.
Chinese banks are facing mounting pressure to maintain profitability at a time when the authorities are ramping up efforts to boost the world’s second-largest economy. The People’s Bank of China unexpectedly lowered the reserve requirement ratio late in a move that will give lenders more cash to disburse loans and drive down their funding costs.
While China’s economic activity is rebounding this year after lifting Covid restrictions — with banks extending a record amount of new loans in January — analysts are cautious about the outlook for the sector.
State-owned banks posted a 13% decline in pre-provision operating profit, which is income before accounting for funds set aside for bad debts, in the last three months of 2022 — the worst quarter since 2010, according to Jefferies
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