The latest economic stimulus policies announced by the Chinese government may inadvertently impact the country’s banks, leading to tightened margins and declining mortgage quality, analysts predict. According to S&P Global Ratings, banks could see their net interest margins eroded by 20 basis points, while return on assets may drop by 14 basis points. To counter this, banks may need to lower deposit rates, posing a challenge for those with weaker deposit bases and regulatory buffers.
The People’s Bank of China instructed banks to reduce mortgage rates by 0.5 percentage point on existing loans, further thinning their net interest margins. Fitch Ratings anticipates continued pressure on banks’ margins due to mortgage rate cuts and government directives to lower borrowing costs. Although there may be some relief from reduced reserve requirements and deposit rates, the outlook remains uncertain.
