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REUTERS/Tingshu Wang/File Photo Acquire Licensing RightsSHANGHAI/SINGAPORE, Aug 25 (Reuters) - China's banks will cut deposit rates soon as part of efforts to make mortgages more affordable and revive property demand, analysts reading China's cryptic policy messages reckon. But China did not opt for a broad rate cut that would further depress banks' narrow net interest margins, instead deferring to banks to cut their deposit rates and give themselves room to cheapen mortgages, analysts said. Lowering deposit rates will give banks much needed wiggle room to cut mortgage rates. "Further reductions to the deposit rates are 'arrows on the string,'" said Wang Yifeng, banking analyst at Everbright Securities. He also expects a tweak to rules so that existing mortgage rates can be reset lower.

Persons: Tingshu Wang, Wang Yifeng, Zhu Qibing, LPR, Zhu, Lu Ting, Lu, Xing Zhaopeng, Xing, Winni Zhou, Tom Westbrook, Samuel Shen, Vidya Ranganathan, Jacqueline Wong Organizations: China Securities Regulatory Commission, REUTERS, Rights, Bankers, Everbright Securities, People's Bank of China, BOC International China, Nomura, ANZ, Thomson Locations: China, Beijing, Rights SHANGHAI, SINGAPORE, Shanghai, Singapore

Most economists expect another modest 10 bps LPR cut in the second half - on top of a 25 bps cut in banks' requirement ratio (RRR). The PROC last cut the RRR - the amount of cash that banks must hold as reserves -- in March, by 25 bps. Each 5 basis points LPR cut could reduce pre-tax profits of major banks by as much as 1.8%, China Merchants Securities said in a report. "A small rate cut is a useful painkiller for symptoms but cannot alleviate the real problem," said Gary Ng, Asia Pacific senior economist of Natixis. On Friday, China's cabinet discussed policy measures to support the economy.

Persons: COVID, NIM, Wang Yifeng, Wang, Gary Ng, China's, Zhang Ming, Zhang, Morgan Stanley, Kevin Yao, Ziyi Tang, Kripa Jayaram, Sumeet Chatterjee Organizations: People's Bank of China, Reuters, Everbright Securities, China Merchants Securities, Asia Pacific, stoke, Chinese Academy of Social Sciences, Thomson Locations: China, BEIJING, Beijing, Asia

☆ China's smaller banks cut deposit rates to ease margin pressure
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +4 min

Several Chinese city commercial banks and rural commercial lenders have cut their rates on a range of deposits this week, according to statements released on the banks' websites. The smaller lenders followed in the footsteps of some of China's biggest state-owned banks, which implemented rate cuts earlier this month. Peiqian Liu, China economist at Natwest Markets, noted the commercial banks' deposit rate cuts are part of the monetary policy transmission mechanism after the central bank cut key policy rates in August. "This rate cut by commercial banks will help improve the profit margin slightly and is technically opening up more space for further (benchmark lending) rate cuts." Four of the five of China’s largest banks, except for Bank of China, reported falling net interest margins (NIMs) in the second quarter.

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