CBC Raises Deposit Rates, First Among Big State Lenders; significant move reflects building pressures even on the powerful state-owned banks as they scramble for deposits to meet regulatory requirement following a lending spurt at the beginning of the year

CBC Raises Deposit Rates, First Among Big State Lenders

02-26 19:25 Caijing

The significant move reflects building pressures even on the powerful state-owned banks as they scramble for deposits to meet regulatory requirement following a lending spurt at the beginning of the year.

One of China’s biggest banks has for the first time relaxed its benchmark-anchoring deposit rate after the country expanded banks’ rate floating bands last June, the first in the top five state-owned lenders and is expected to be followed by other major banks.

The Communication Bank of China (CBC), the country’s fifth-largest lender, floated its deposit rate to the maximum permitted, which is 10 percent higher than the benchmark rate, the Guangzhou Daily reported.

From the Jan.1 to March 3 period in 2013, the rates of two-year, three-year and five-year time deposits would be floated by 10 percent above the benchmark rates, according to the bank’s leaflet.

The significant move reflects building pressures even on the powerful state-owned banks as they scramble for deposits to meet regulatory requirement following a lending spurt at the beginning of the year. It also marks the collapse of an interest rate union, according to the report, where five biggest state-owned banks maintained the rates of deposits with maturities of over a year in line with the benchmark rates.

Chinese banks extended 1.07 trillion yuan in new loans in January, an increase of 334 billion from the same month a year ago, according to data published by China’s central bank. Lending activities have remained uppity so far in the second month of this year, with lending by the biggest four banks hitting 250 billion yuan in the first 17 days, well above last year’s 180 billion in the same period.

Meanwhile, banks are struggling to have a loan-to-deposit ratio of no high than 75 percent, as required by the country’s banking regulator. Data from the China Banking Regulatory Commission shows the ratio was 65.28 percent ending the third quarter of 2012, up 0.95 percent from the second quarter.

“Under the twin pressures of surging loan demands and weak deposit growth, banks are bound to consider raising raising deposit rates, as long as they are allowed to,” the newspaper quoted an unnamed industry analyst as saying, “because it is the simplest way to replenish capital.”

Banks will compete more seriously after CBC led the way to lure depositors, according to the report, while with rising cost of capital, their profits could shrink further.

Smaller city commercial banks as well as stock-holding banks like China Merchants Bank and China Everbright Bank have already floated their deposit rates higher by differentiate levels. On October 2012, Ping An Bank raised its two-year time deposit rate by 5 to 10 percent based on the amount of deposits.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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