Chinese private banks cut deposit rates; moves to promote consumption, increase capital liquidity

Chinese Yuan Photo:VCG

Experts said on Sunday the move would ease pressure on their debt spending and increase the stability of financial services for the real economy, as more private banks, including Wuhan Z-bank, Zhejiang E-Commerce Bank and WeBank, cut their rates in September.

Experts say there is potential for further interest rate cuts, which could lower borrowing costs, boost consumer spending and increase capital liquidity.

On Friday, Wuhan Z-Bank, which operates in central China’s Hubei Province, said it was adjusting the annual percentage rates on its demand deposit and time deposit products, effective from Wednesday.

The interest rate on three-year term deposits will be reduced from 2.4 per cent to 2.15 per cent, and on five-year term deposits from 2.45 per cent to 2.2 per cent.

Wuhan Z-bank is not alone in taking such steps. In late July this year, state-owned banks took the lead in lowering deposit rates. Now, the trend has spread to private banks, which are known for their high interest rates.

On September 13, Zhejiang E-Commerce Bank lowered the annual interest rate on three-year term deposits to 2.3 percent and on two-year term deposits to 2.0 percent.

WeBank, based in Shenzhen, southern China’s Guangdong province, has cut annual percentage rates on a range of retail deposit products. The cut is effective from September 9.

The interest rate on five-year deposit products has been adjusted from 2.45 per cent to 2.20 per cent, while the interest rate on three-year deposit products has been adjusted from 2.45 per cent to 2.30 per cent.

“Amid falling interest rates, the move by private banks is aimed at reducing the pressure on liability costs and ensuring a reasonable profit margin,” Xi Junyang, a professor at Shanghai University of Finance and Economics, told the Global Times on Sunday.

Xi said the latest cuts in deposit rates by small and medium-sized banks are simply a continuation of the deposit rate cuts that started in June.

On June 25, some major state-owned banks, including the Industrial and Commercial Bank of China and the Agricultural Bank of China, cut their deposit rates by 5-20 basis points. In addition, on June 29, 10 Chinese commercial banks simultaneously cut their deposit interest rates.

Xi said there is still room for further interest rate cuts, and this trend will encourage consumers to spend money instead of keeping it in bank deposits, promote the optimization of asset allocation and strengthen the dynamics of capital flows into the market, thereby enhancing the vitality of the financial market and consolidating economic recovery.