Only a handful of small Chinese lenders have set deposit rates in line with a higher ceiling authorised by the central bank, as regulators and bank executives warned of rising bad loans and a squeeze on financial sector profits.
On November 21, People’s Bank of China cut its benchmark lending rate by 0.4 percentage points, while only lowering its deposit rate by 0.25 percentage points. It was a departure from previous rate cuts in which the two benchmarks were reduced by equal amounts, thus putting pressure on Chinese banks’ margins.
In addition, the PBoC allowed banks to set their own deposit rates up to 20 per cent above the benchmark, compared with a previous ceiling of 10 per cent. By raising the upper limit, the PBoC wants Chinese banks to compete for funding as part of its plan to achieve full deregulation of deposit rates – something that central bank governor Zhou Xiaochuan has said could happen by early 2016.