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BEIJING/SHANGHAI (Reuters) -China has lowered the ceilings on deposit rates, three banking sources with direct knowledge of the guidance said on Friday, as authorities seek to protect banks’ profit margins and discourage savings.
The interest rate self-regulatory body under China’s central bank has lowered the upper limit of deposit rates banks can offer their clients, the sources said.
The move came days after China cut benchmark lending rates and state banks reduced their baseline deposit rates.
China’s economy is suffering from weak consumption, a prolonged property crisis and a trade war with the United States, putting pressure on banks’ profitability.
"Banks’ interest margins are under heavy pressure," one of the sources said. Every 10 basis-point (bp) cut in deposit rates could reduce overall borrowing costs by roughly 5 bps, the source added.
Under the latest guidance, the ceilings for some banks’ time deposit rates have been slashed by 30-40 bps, according to the sources.
In contrast, China’s major banks reduced baseline deposit rates by up to 25 basis points (bps) for some tenors on Tuesday.
This reflects regulators’ desire to prevent interest margins from shrinking further, as some banks compete heavily to build deposits by promising high returns.
Amid the heated competition for deposits, reducing the rate ceilings can give some breathing space for banks already suffering from sliding margins, a source said.
Commercial banks’ net interest margin - a key profitability measure - dropped to a record low 1.43% in the first quarter of this year, official data showed.
The margins are expected to fall a further 10-15 bps this year, analysts at China International Capital Corp predicted.
The PBOC did not respond to Reuters’ request for comment.