Chinese banks are set to slash deposit rates amid economic slowdown

Chinese commercial banks are set to reduce time deposit rates on Friday, allowing for potential decreases in lending costs amid an economic slowdown, three sources told Reuters.

The adjustments entail a reduction of 10 basis points (bps) for 1-year time deposits, 20 bps for 2-year deposits, and 25 bps for 3- and 5-year deposits, the sources said.

Furthermore, these banks plan to lower rates for large-scale certificates of deposit (CDs), with a cut of 10 bps for 1-year and 25 bps for 2-year CDs, along with 30 bps reductions for 3-year and 5-year large-scale CDs, as revealed by the same sources.

The People's Bank of China did not respond immediately to Reuters' inquiry for comment.

The state-owned Industrial and Commercial Bank of China (ICBC) confirmed its intention to implement interest rate reductions on selected deposits beginning Friday.

This impending deposit rate adjustment marks the third such reduction in 2023, following earlier cuts in June and September.

The move is aimed at potentially alleviating the pressure on banks' net interest margins, which is essential for assessing profitability. The government's push for economic support urges these adjustments. Lower deposit rates will provide banks with the flexibility needed to lower lending rates.

Although China maintained benchmark lending rates during the recent monthly setting and held its medium-term policy rate steady the prior week, market observers anticipate further monetary easing in the coming year. The aim is to bolster a struggling economic recovery in the face of challenges like a downturn in the property sector, risks associated with local government debt, sluggish global growth, and geopolitical tensions.

Upon news of the impending deposit rate cuts, China's 10-year treasury yield experienced a decline to 2.611 per cent, hitting its lowest point since September 1, indicating an inverse relationship with price movements.

(With Reuters inputs)