September 27, 2023

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China intensifies its economic support as the vote on the Country Garden project approaches

China intensifies its economic support as the vote on the Country Garden project approaches
  • Five of the largest Chinese banks cut interest rates
  • The vote on beleaguered developer Country Garden is due Friday
  • The central bank lowers the amount of foreign currency that banks must hold as reserves
  • It moves as part of broader measures to support the economy

BEIJING (Reuters) – Five of China’s largest banks on Friday cut interest rates on a range of deposits in a concerted effort to ease pressure on their shrinking margins, as Beijing ramps up measures to prop up the country’s ailing economy.

China is grappling with a slowdown that has rocked global markets, with the spotlight now firmly focused on the mounting debt crisis of struggling developer Country Garden (2007.HK) in a sector that accounts for about a quarter of the economy.

As pressure mounted, the Chinese authorities launched a series of measures to stimulate the economy and revive the crisis-hit real estate market, with steps including easing some borrowing rules and reducing the amount of foreign exchange that banks must hold as reserves.

Country Garden on Thursday pushed back the deadline for creditors to vote on whether to delay payments of 3.9 billion yuan ($537 million) in private bonds until Friday at 1400 GMT to give bondholders “enough time” to prepare for the vote.

The vote is a major hurdle for Country Garden in its quest to avoid default, with one holder of dollar bonds telling the developer that if the company cannot extend its domestic debt, it cannot serve overseas bondholders.

“This was a slow-motion car accident,” said the bondholder, who asked not to be identified due to the sensitivity of the issue, adding that concerns centered around uncertainty about the broader economy and tensions with Washington.

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“Everything they do now will have an impact five to ten years from now.”

Country Garden, China’s largest private real estate developer by sales, did not immediately respond to a Reuters request for comment.

Tension in the real estate market has intensified pressure on Beijing to implement supportive measures and raised concerns about the ability of policymakers to halt the decline in China’s broader economic growth.

New home prices in China fell for the fourth month in August, according to a private survey conducted on Friday, as the real estate debt crisis kept confidence at a low level despite strict support measures.

Reducing interest rates on deposits

The central bank said on Friday that it will cut the foreign exchange reserve requirement ratio by 200 basis points to 4% from 6% starting Sept. 15, a move aimed at slowing the pace of the yuan’s decline.

Lenders that cut mortgage interest rates on Friday included Industrial and Commercial Bank of China (601398.SS), China Construction Bank (601939.SS), and Agricultural Bank of China (601288.SS), which slashed their deposit rates by five to five percent. and five. The websites of each bank showed 25 basis points.

Three sources familiar with the matter told Reuters on Tuesday that major state banks will cut interest rates on deposits as they prepare to lower interest rates on existing mortgages, as part of Beijing’s efforts to revive a real estate sector hit by the debt crisis.

China’s central bank and financial regulator announced Thursday that from September 25, first-time homebuyers with mortgages can apply to their banks for a lower interest rate on their existing loans.

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Two of China’s largest cities, Guangzhou and Shenzhen, also eased mortgage restrictions this week, broadening the definition for homebuyers to enjoy preferential first-home loans.

Lenders cut interest rates on one-year term deposits by 10 basis points to 1.55%, on two-year deposits by 20 basis points, and on three-year and five-year deposits by 25 basis points.

The interest rate cuts on deposits are the third of their kind in one year, as the size of the cuts was greater than the previous two rounds in June and September last year.

Nicholas Chu, banking analyst at Moody’s, said lower deposit rates would partly offset various pressures on banks’ narrow net interest margins – a key measure of profitability.

“The impact of lower interest rates on deposits is substantial, given that nearly three-quarters of Chinese banks’ liabilities are deposits,” Zhou said.

Several medium-sized Chinese banks, including Industrial Bank Co Ltd (601166.SS) and China Bohai Bank Co Ltd (9668.HK), also announced that they would start cutting interest rates on a range of deposits from Friday by 10% to 25%. basis point.

China’s total mortgage loans reached 38.6 trillion yuan (5.29 trillion US dollars) at the end of June, accounting for 17 percent of total bank loans.

($1 = 7.2633 CNY)

(Reporting by Ziyi Tang, Ryan Wu, and Wang Jing) — Additional reporting by Davide Barbuscia in New York;

Our standards: Principles of Trust for Thomson Reuters.

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