Major Chinese banks cut high-yield deposit products to ease margin pressure

BEIJING, December 3 (Reuters) –

Some major Chinese commercial banks have eliminated five-year, large-scale certificates of deposit that provide high returns from their offerings in a bid to cut costs and offset margin pressure.

Banks such as the Industrial and Commercial Bank of China (ICBC) and the Agricultural Bank of China (AgBank) now only offer short-term, large-scale CDs ranging from six months to three years, according to the banks’ mobile apps.

Short-term deposit products carry interest rates around 1.2% to 1.8%, compared to large-scale five-year CDs that offer interest rates around 2% to 2.1%.

ICBC and AgBank did not immediately respond to Reuters’ request for comment.

Chinese banks are grappling with shrinking profit margins as the government encourages them to support a slowing economy. Lowering deposit rates will give banks much-needed leeway to reduce loan rates.

Chinese commercial banks said net interest margins, a key indicator of profitability, remained at a record low of 1.42% at the end of the third quarter, flat from the previous quarter, official data showed.

Small banks, facing more serious margin pressure, had begun to take similar measures.

Last month, many rural banks in China’s Inner Mongolia region and Yunnan province announced that they would stop offering five-year fixed-term deposits and reduce interest rates on short-term products.

In May, major state banks cut deposit rates after authorities cut benchmark lending rates to protect the economy from the impact of the US-China trade war.

Repeated cuts to deposit rates in recent years have failed to rein in the explosive growth of household savings in China, intensifying concerns about the fallout of lower returns on the country’s consumers, who tend to build their own safety nets. (Reporting by Ziyi Tang and Ryan Woo; Editing by Thomas Derpinghaus)