- Five of China’s largest banks have cut interest rates
- The vote on the embattled developer Country Garden is on Friday
- The central bank lowers the amount that forex banks must hold as reserves
- Beijing will take more measures to revitalize the sources of the real estate sector
- Moves as part of broader measures to support the economy
BEIJING, Sept 1 (Reuters) – China on Friday stepped up measures to boost the country’s flagging economy. Big banks are paving the way for further lending rate cuts and sources say Beijing is planning further measures, including easing restrictions on home buying.
As part of the support measures, the Chinese authorities also reduced the amount institutions are required to hold in foreign exchange reserves. The measures pleased investors and analysts said they should prevent a further downturn in the troubled real estate sector.
China is grappling with a slowdown that has rocked global markets. The focus is now firmly on troubled developer Country Garden’s (2007.HK) deepening debt crisis in a sector that makes up about a quarter of the economy.
As pressure mounts, authorities have taken a number of measures to boost the economy and revitalize the property market. The moves include relaxing some lending rules and cutting the foreign exchange reserves that banks are required to hold as reserves.
Four people familiar with the matter said the country would take further action, including easing restrictions on home buying.
Regulators, including the Ministry of Housing, the Central Bank and the Financial Regulator, will implement measures they have been working on over the past few months under the guidance of the State Council in the coming weeks, two of the people said.
Betty Wang, senior China economist at ANZ, said several nationwide property easing measures in recent weeks have beaten market expectations.
“This is the first time since 2021 that China has announced a series of nationwide housing easing measures. They will help restore market confidence and prevent the sector from falling further.”
COUNTRY GARDEN TEST
In the near term, however, market sentiment will be affected by the outcome of a crucial investor confidence test in Country Garden.
On Thursday, Country Garden pushed back a deadline for creditors to vote on whether to delay payments on a 3.9 billion yuan ($537 million) onshore private bond until 2pm GMT on Friday Giving bondholders “reasonable time” to prepare for the vote.
The vote presents a major hurdle for Country Garden to avoid default. A holder of the developer’s dollar bonds said if the company cannot roll over its domestic debt, it would be unable to service outside bondholders.
“That was a slow car wreck,” said the bondholder, who declined to be named due to the sensitivity of the issue, adding that concerns centered on uncertainty about the broader economy and tensions with Washington.
“Anything they do now will have an impact in five to 10 years.”
Chinese yuan coins and banknotes are seen in this illustration image dated February 24, 2022. REUTERS/Florence Lo/Illustration/File Photo acquire license rights
Country Garden, China’s top-grossing private developer, did not immediately respond to Reuters’ request for comment.
Tensions in the housing market have increased pressure on Beijing to implement supportive measures and raised concerns about policymakers’ ability to stem a slowdown in China’s overall economic growth.
China’s new home prices fell for the fourth month in August, according to a private survey on Friday, as the housing debt crisis kept confidence low despite broad supportive measures.
Deposit interest reduced
The central bank announced on Friday that it would cut the reserve requirement ratio (RRR) by 200 basis points (bps) to 4% from 6% starting September 15. The move is intended to slow the pace of the yuan’s decline.
Lenders that cut mortgage rates on Friday included the Industrial and Commercial Bank of China (601398.SS), China Construction Bank Corp (601939.SS) and Agricultural Bank of China (601288.SS), which lowered their deposit rates by five to 25 basis points, individual bank websites showed. Several mid-sized banks also announced they will begin cutting interest rates by 10 to 25 basis points on a range of deposits.
The measures helped boost market confidence and troubled real estate stocks rallied, with China’s CSI 300 Real Estate Index (.CSI000952) up 2.4% in afternoon trade.
Three sources familiar with the matter told Reuters on Tuesday that major state banks would cut deposit rates as they prepare to cut interest rates on existing mortgages soon.
Starting Sept. 25, first-time homebuyers with mortgages can apply to their banks for a lower interest rate on their existing loans, China’s central bank and financial regulator announced on Thursday.
The deposit rate cuts are the third of their kind in a year, with the magnitude of the cuts being larger than the previous rounds in June and September last year.
Lower deposit rates will partially offset various pressures on banks’ shrinking net interest margins — a key indicator of profitability, said Nicholas Zhu, a banking analyst at Moody’s.
“The impact of lowering the deposit rate is significant considering nearly three-quarters of Chinese banks’ liabilities are deposits,” Zhu said.
China’s mortgage loans totaled 38.6 trillion yuan ($5.29 trillion) at the end of June, accounting for 17% of banks’ total loan portfolios.
($1 = 7.2633 Chinese Yuan Renminbi)
Reporting by Ziyi Tang, Ryan Woo and Wang Jing, with additional reporting by Davide Barbuscia in New York; Adaptation by Anne Marie Roantree and Lincoln Feast
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