Following on from Adam’s look behind yesterday rate cuts by the Peoples Bank of China we now have comments from the head of the world’s most profitable lender expressing concern as to their ultimate impact
The PBOC raised the cap on what banks can pay customers for deposits to 120% of the benchmark from 110%, as it announced a 0.4 percentage point reduction in the one-year lending rate and a 0.25 percentage point cut in the 12-month deposit rate. This will mean depositors’ returns will be unchanged if lenders raise rates to the new ceiling.
The central bank said in a statement yesterday that the increased premium banks are allowed to pay depositors is
another important measure in deposit rate liberalization
But at a forum today in Beijing Jiang Jianqing, chairman of Industrial & Commercial Bank of China Ltd., China’s biggest lender warned that the move will
inevitably squeeze the profit margins of banks, and the narrower margin is a long-term trend
The erosion of profit margins will hurt banks’ ability to grow and capability to expand assets
Analysts have also expressed concerns, with Zhu Haibin, chief China economist at JPMorgan Chase & Co.HK saying
The asymmetric interest rate cut could put significant pressure on bank profitability.
This may raise the question whether banks will maintain the distribution of lending rates around the benchmark rates, or will choose to float up the range
Bloomberg reporting.
I’m all for trimming back bank profits but it seems that the knock-on effects of these PBOC measures may yet have consequences they weren’t hoping for.
PBOC measures will hit banks where it hurts, but will they still boost growth?
