20-05-2025
China banks cut deposit rates to aid margins, drive spending
MAJOR Chinese banks cut deposit rates again, in the latest efforts to preserve their shrinking profitability and drive consumers to spend more amid a flagging economy.
Lenders including the Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and China Merchants Bank trimmed rates across maturities on Tuesday (May 20). One- and two-year fixed deposit rates fell by 15 basis points, according to official announcements and updates on their mobile apps. Rates on three- and five-year deposits were slashed by 25 basis points.
The cuts on the country's more than 300 trillion yuan (S$54 trillion) of deposits came as the recent package of government measures to stimulate the world's second-largest economy has further squeezed bank profits. China earlier this month reduced its policy lending rate as it ramped up efforts to help an economy caught in a second trade war with the US.
Meanwhile, Chinese banks also lowered their one-year and five-year loan prime rates (LPRs) – a benchmark for their best customers – by 10 basis points on Tuesday, a move in line with market expectations. That brought the one-year LPR, the reference for corporate loans, down to 3 per cent, and the five-year LPR, which is the benchmark for mortgages, down to 3.5 per cent.
Chinese lenders embarked on their deposit rate cut cycle in late 2022 with a broad-based reduction, the first since 2015, after authorities urged them to boost lending. They have followed with more cuts since then in an attempt to salvage record-low margins amid weakened profitability. Two-year deposit rates have been more than halved.
After Tuesday's reduction, the one-year rate on time deposit of major banks stands at 0.95 per cent, while their two-year rates are at 1.05 per cent. Their three and five-year rates are at 1.25 per cent and 1.3 per cent, respectively.
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Chinese banks wealth management products gained inflows in the second quarter as clients moved money out of bank deposits into assets with higher return potential, according to a report by Shanghai Securities News on Tuesday.
Total assets of fixed-income and cash management products in the market increased 8.4 per cent and 7.9 per cent, respectively, from the end of the first quarter, the report said, citing data from PY Standard as at May 19.
Driven by persistent state efforts to push down borrowing costs, China's 10-year government bond yield has fallen steadily in the past few years to about 1.66 per cent, around a record low.
Highlighting the challenges facing the economy despite a quick de-escalation of trade tensions with the US, the latest economic data showed China's industrial output expanded faster than expected in April while consumption disappointed. That pointed to the need for more supportive policies as economists warn of complacency after a 90-day pause on tariffs.
China's prolonged property crisis, deflationary pressure and worries about unemployment are weighing on confidence among households. BLOOMBERG
