In a desperate attempt to buffer their diminishing margins, five of China’s premier banks recently cut deposit rates. This seemingly coordinated effort appears to be a move towards reviving a beleaguered property sector and an economy on the ropes.
But as with any drastic action, it begs the question: will this tactic actually provide the needed spark or will it further dampen China’s economic prospects?
The Nitty Gritty of the Rate Cuts for China
China’s banking giants – from the renowned Industrial and Commercial Bank of China to the China Construction Bank Corp and Agricultural Bank of China – made a decisive move.
These institutions collectively sliced their deposit rates from five to 25 basis points, as revealed by their respective official channels. What prompted this move? Well, insiders had already whispered earlier in the week about state-run banks mulling over deposit rate cuts.
The reason? A prelude to diminished interest rates on existing mortgages, which seems to be China’s game plan to breathe life into the debt-riddled property sector.
From September 25, greenhorn homebuyers with mortgages can knock on the doors of their respective banks to seek a more palatable interest rate for their standing loans. A joint announcement by China’s central bank and financial overseer heralded this.
A Nation’s Economic Turmoil: Can It Be Reversed?
However, what’s genuinely startling is the backdrop against which these measures are being undertaken. Two of the country’s economic powerhouses, Guangzhou and Shenzhen, are softening their stance on mortgage regulations.
They’ve redefined parameters, allowing a wider bracket of homebuyers to capitalize on preferential rates for initial home acquisitions. But, not everything seems rosy. Take the case of the beleaguered developer, Country Garden.
The property giant is on the precipice, scrambling to stave off defaults, while grappling with a whirlwind of financing tribulations. Add to this, a resistance from a faction of its creditors.
They’re holding the company’s feet to the fire, deciding on the fate of a staggering 3.9 billion yuan ($535 million) bond.
Country Garden’s challenges are not isolated incidents. They’re symptomatic of deeper fissures within the property sector. And the ramifications? A potential ripple effect jeopardizing the entire financial system, especially when China’s economy is already skidding.
However, let’s steer back to the primary focus – the rate cuts. These aren’t one-off incidents. The recent deposit rate reductions are the third within the span of a year. The current cuts have outpaced previous trims observed in June and last September.
Nicholas Zhu, a banking pundit, weighed in on this matter. He stressed the significance of the recent deposit rate slashes, especially when you factor in that nearly three-quarters of China’s banking liabilities are firmly anchored in deposits.
But it’s not just the banking behemoths adjusting their rates. Several of China’s mid-tier banks are also hopping on this bandwagon. Come Friday, institutions like Industrial Bank Co Ltd and China Bohai Bank Co Ltd will be slashing their interest rates on assorted deposits by 10-25 basis points.
And here’s a figure to chew on: China’s mortgage loans skyrocketed to a jaw-dropping 38.6 trillion yuan ($5.29 trillion) as of June’s end. That translates to a whopping 17% of the total loans that banks are juggling with.
So, here we stand, watching China’s banking institutions attempting to stanch the bleeding of an economy and a property sector at a crossroads. It remains to be seen whether these rate cuts will be the salvation the country hopes for or if they’ll plunge the nation further into economic uncertainty.
Source: https://www.cryptopolitan.com/top-china-banks-slash-deposit-rates/