CHINA'S 146 million stock investors, burned by slumping prices, are pulling money out of equities and putting it into deposits. That's not necessarily a good thing for banks.

As the benchmark CSI 300 Index tumbled 46 percent this year, investors shifted cash from low-yielding "demand" deposits to so-called time deposits that pay interest that's at least four times as much, according to Credit Suisse Group. During the two-year stock market rally that ended in October, households were doing the opposite, reducing costs for the banks, Bloomberg News said.

With the government now restricting loans to combat inflation, Chinese banks face narrower profit margins as they're unable to compensate for higher deposit costs by accelerating lending.

The stock market drop is also curtailing mutual fund sales, hampering efforts by banks to increase earnings from outside their mainstay lending business. Chinese lenders offer 3.33 percent annual interest on three- month time deposits, compared with 0.72 percent for demand deposits, which can be drawn upon at any time. Deposit rates are set by the central bank.

The ratio of time deposits relative to China's US$2.8 trillion household bank savings market climbed every month this year, reaching a one-year high of 63 percent in May, according to the central bank.

Industrial and Commercial Bank of China, Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank and China Citic Bank had average loan margins of 2.97 percent in 2007. Shares of the companies slumped by an average 43 percent in Shanghai this year and 14 percent in Hong Kong, erasing almost US$300 billion of market value.

The investment shift shows few signs of ending. In the central bank's latest household survey, 38 percent of respondents said they planned to save more in bank deposits. That's up from 35 percent three months earlier and 25 percent in last year's third quarter.