(Yicai) May 20 -- China’s largest state‑owned banks have cut deposit interest rates again, pushing the one‑year rate below 1 percent for the first time ever, as part of a coordinated monetary easing effort to support the economy and stabilize bank lending margins.

Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications lowered rates today, the seventh time since the current easing cycle began in September 2022.

They reduced the one-year deposit rate to 0.95 percent from 1.1 percent and the two-year rate to 1.05 percent from 1.2 percent. The three- and five-year rates were dropped by 25 basis points each to 1.25 percent and 1.3 percent, respectively. And after a five-basis-point cut, current accounts now yield only 0.05 percent.

The widely anticipated move is the first time that major Chinese state-owned commercial banks have lowered their fixed-term deposit rates since last October.

Postal Savings Bank of China and China Merchants Bank promptly mirrored the cuts, lowering their time‑deposit rates across all maturities. Based on experience, other nationwide banks as well as small and medium-sized lenders are expected to follow suit shortly.

Pan Gongsheng, governor of the People’s Bank of China, said at a May 7 press conference that the central bank would reduce the reserve requirement ratio, or the share of deposits banks must hold in reserve as cash, and the seven-day reverse repo rate, its benchmark interest rate for repurchase agreements with commercial lenders.

He added that the PBOC would guide banks to lower their deposit rates accordingly.

The following day, the central bank cut the seven-day reverse repo rate by 10 basis points to 1.4 percent. Along with the cut in time deposit rates, this move was expected to drive down the loan prime rate, a market-based benchmark lending rate.

As anticipated, the one-year LPR -- a reference rate for consumer and corporate loans -- was lowered to 3 percent today from 3.1 percent, and the five-year LPR -- a reference for mortgages -- was reduced to 3.5 percent from 3.6 percent.

Monetary policy easing is straining banking profits. In the first quarter, the weighted average interest rate on general loans fell to a historic low of 3.75 percent, while net interest margin at commercial banks shrank to an all-time low of 1.43 percent.

The latest deposit rate cuts were implemented alongside LPR reductions as banks strive to proactively stabilize their interest rate spreads, noted Ming Ming, chief economist at Citic Securities.

However, the room for further cuts is limited since the rate on demand deposits is already near zero, at 0.05 percent, an industry insider pointed out. Banks are expected to control their cost of liabilities by adjusting the internally set upper limits on interest rates, the source added. 

Editors: Dou Shicong, Emmi Laine