Caixin
Jun 16, 2021 08:24 PM
FINANCE

Exclusive: Banks Prepare to Lower Deposit Rates as Rate Cap Reform Takes Effect

Photo: VCG
Photo: VCG

Multiple banks in China are getting ready to reduce how much interest they offer on deposits, taking advantage of a reform that encourages them to lower the cap on deposit rates, sources with knowledge of the matter told Caixin.

The change comes as Beijing hopes to reduce banks’ funding costs so they can lower businesses’ borrowing costs, benefiting the real economy.

Under the reform, banks will set the upper limit on their deposit interest rates by adding a certain number of basis points to the central bank’s benchmark deposit rates, rather than multiplying the benchmark rates by a specific number, Caixin previously reported. A self-regulatory organization backed by the central bank approved the new regime at an internal meeting earlier this month.

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Exclusive: China Is Likely to Lower Cap on Banks’ Deposit Rates

Most commercial banks have been instructed to adapt to the new rate-setting method before June 21, the sources said. Multiple lenders are in the process of updating their contract templates and relevant systems, they said.

An employee of the Beijing branch of Bank of Communications Co. Ltd. (601328.SH) said that the bank’s three-year rate on a deposit of 50,000 yuan ($7,805) will be cut to 3.5% from 3.85% currently.

A source working at Bank of Shanghai Co. Ltd. (601229.SH) said the bank’s current three-year term deposit rates on deposits of 200,000 yuan and 500,000 yuan will be cut to below 4%, down from 4.1% and 4.13%, respectively.

China’s financial regulators are stepping up efforts to lower costs for the country’s lenders, who are expected to lower borrowing costs for businesses. In March, the government work report delivered by Premier Li Keqiang called for regulators to further improve regulation on deposit rates and continue to guide the financial system to benefit the real economy.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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