(Yicai) March 1 -- Small private banks in China are still able to offer rates of around 4 percent or even more to depositors owing to net interest margins that are wider than those at larger lenders, according to a banking sector expert.

Around the time of the recent lunar new year holiday, online lender Z-Bank launched an account paying 5.15 percent on a three-year fixed period and 5.5 percent on a five-year fix for a minimum deposit of CNY500,000 (USD69,480).

Liaoning province-based NewUp Bank is also marketing a five-year account carrying a 4 percent rate, while several others, including Fujian’s OneBank and Beijing’s Zhongguancun Bank, are offering around 3.5 percent.

These are relatively high rates when set against the about 2 percent on offer for long-term deposits at state-owned banks and the maximum 2.3 percent available at joint-stock banks.

Customers tolerate the higher cost of borrowing at smaller private banks because most struggle to secure loans from larger lenders, said Zeng Gang, director of the Shanghai Institution for Finance and Development.

That gives private banks an advantage in terms of net interest margin -- the difference between the amount of money a bank earns on loans and the amount it pays out on deposits -- enabling them to offer higher interest rates on deposits, Zeng pointed out.

Last year, private banks had an average net interest margin of 4.4 percent, according to data from the National Administration of Financial Regulation. At state-owned lenders it was 1.7 percent, and 1.8 percent at joint-stock banks.

But high deposit rates put the assets and liabilities of these private banks under intense strain, pushing up operating costs, Zeng said, adding that the business model also has hidden risks due to possible rule violations. As a result, it is not uncommon for them to suffer setbacks in business performance and asset quality, he said.

Last year, regulators fined private banks almost CNY20 million (USD2.8 million), according to official data. Among them, Z-Bank was fined CNY8.3 million for poor management of credit funds. The Wuhan-based bank’s bad loans ratio had also exceeded 1.7 percent as of Dec. 31, higher than the banking sector average.

Editors: Tang Shihua, Emmi Laine