BANK of China Ltd and local rivals may see profit growth slow down next year after the central bank raised the benchmark deposit rate to a nine-year high, said analysts at Macquarie Equity Market Group and UBS AG.
The People's Bank of China raised the one-year lending rate by 0.18 percentage point to 7.47 percent, and the one-year deposit rate by 0.27 percentage point to 4.14 percent from yesterday.
Increasing deposit returns more than lending rates will trim loan margins at Chinese banks, which rely on extending credit for about 90 percent of their income, Bloomberg News said. Bank of China may be hardest hit because its demand deposits, or accounts from which money can be taken out at anytime, represent a smaller portion of its total than at most rivals, analysts said.
The PBOC's sixth interest rate increase this year will shave as much as 7.7 basis points off the lending margins of Hong Kong-traded Chinese banks on average, UBS said in a note to clients. A basis point is 0.01 percentage point. Pretax profits will be reduced by up to 3.5 percent, the note said.
Macquarie analysts forecast a reduction of as much as eight basis points in average lending margins. Pretax profits will be reduced by up to 4.4 percent, they said.
The central bank also unexpectedly cut the demand deposit rate by nine basis points, the first reduction since February 2002, to encourage people to shift their money into fixed-term savings.