China’s banks withdraw some long-term fixed-income products, cut deposit rates to boost margins
- Certificate of Deposits have become popular after China’s floundering stock markets dented investor’s risk appetite
- Banks are cutting deposit rates as the property crisis, mounting local government debt, and slow consumption recovery weighed on their profitability and earnings
China’s commercial banks are removing some of their long-term fixed-income products and cutting rates offered to depositors, in an effort to shore up profitability, as challenges, including a slumping property sector, mounting local government debt, and slow consumption recovery, weigh on lenders’ earnings.
China Merchants Bank, the country’s seventh-largest bank by asset known for its retail services, said this week that it will stop offering three-year and five-year certificates of deposit (CDs), which are fixed-income savings accounts usually with a minimum deposit amount of 200,000 yuan (US$27,635). Citic Bank, another top commercial bank, also removed five-year CDs from its product shelf this week.
A customer service representative at the Industrial and Commercial Bank of China, the country’s largest bank, told the Post on condition of anonymity that while the bank is still offering long-term CDs, “there is no guarantee that customers could get them”.
The move is intended to cut funding costs and protect banks’ net interest margins (NIM), said Li Ying, head of financial institutions ratings at S&P Global (China) Ratings.
“Bank margins are pressured on both the assets and liabilities sides, and since the lenders do not have much leeway in boosting their interest revenue on the asset side this year, they need to reduce higher-cost funding, such as long-term CDs, and cut deposit interest rates in general,” she added.
First introduced in 2015 by the People’s Bank of China, CDs function similarly to time deposits, but have higher minimum deposit requirements and pay higher interests. Commercial banks across the country now offer nine types of CDs, with maturities ranging from one month to five years.
