Eye on margins: China has instructed commercial banks to stop offering interest rates above deposit-rate ceilings. File
| Photo Credit: REUTERS

A number of Chinese banks announced they will discontinue certain deposit products that offer higher interest rates, the latest move by lenders to ease cost burdens as they face pressure on profit margins.

May lower rates

Lenders such as Bank of Communications (BoCom), Postal Savings Bank of China, Industrial Bank and China Citic Bank said they will no longer offer some personal and corporate deposit products with higher interest rates, or will lower the rates to be equal to those of demand deposits which allow withdrawals at any time.

The change, effective from May 15, affect products including “call deposits” and “agreement deposits” with higher yields, according to statements release this week.

Amid a slowing economy, China’s lenders have seen net interest margins — a key gauge of profitability — shrink as they grapple with pressure to lower interest rates on loans for struggling sectors at a time when loan demand is waning.

China has instructed commercial banks to stop offering interest rates on deposits above deposit rate ceilings, Reuters reported last month.

Luring depositors

Smaller lenders have been particularly aggressive in luring depositors by offering higher interest rates amid economic headwinds, posing a threat to financial stability.

The move is to “implement relevant regulatory requirements and further maintain market competition order,” Postal Savings Bank said in a statement.