Rate cuts likely to hit bank profits
By Hu Xiaocen |
July 7, 2012, Saturday
|
Print Edition
Print Edition
CHINA'S second interest rate cuts in a month will further eat up lenders' profits but to a limited extent as banks will adjust their lending structure to trim the losses, analysts said yesterday.
"The interest rate cuts will shrink lenders' net interest margin and long-term profitability," UBS said in a report.
"Banks will adjust their credit structure to maintain their margin by lending more to small and medium businesses that have less bargaining power over the lending cost."
"We expect the negative effects of the cut to be gradually reflected in the third-quarter earnings reports and annual reports of this year. Meanwhile, 2013 results will be more impacted than those of 2012," UBS said.
ANZ Bank said in its latest report that the widened floating range of lending cost will further squeeze lenders' profits, but commercial banks may not be willing to offer lower lending rates as the difference between lending rates and borrowing rates is reduced.
China International Capital Co said lenders are not motivated to lend money at a 30 percent off discount rate, as it roughly equals to the seven-day interbank lending rate. If the profit margin of lending to peers and businesses is the same, the lender will rationally favor interbank loans with lower risks.
"Mortgages also have lower risk and capital consumption than corporate loans, therefore there's very little chance the banks will lend at the maximum discounted rate. Lenders' net interest margin will not be significantly impacted," the research company said.
Shares of Chinese banks fell in Shanghai yesterday. The Industrial and Commercial Bank of China, the nation's biggest lender, slumped 1 percent to 3.91 yuan (61 US cents). China Construction Bank shed 0.7 percent to 4.16 yuan. The Bank of China lost 0.4 percent to 2.81 yuan.
"The interest rate cuts will shrink lenders' net interest margin and long-term profitability," UBS said in a report.
"Banks will adjust their credit structure to maintain their margin by lending more to small and medium businesses that have less bargaining power over the lending cost."
"We expect the negative effects of the cut to be gradually reflected in the third-quarter earnings reports and annual reports of this year. Meanwhile, 2013 results will be more impacted than those of 2012," UBS said.
ANZ Bank said in its latest report that the widened floating range of lending cost will further squeeze lenders' profits, but commercial banks may not be willing to offer lower lending rates as the difference between lending rates and borrowing rates is reduced.
China International Capital Co said lenders are not motivated to lend money at a 30 percent off discount rate, as it roughly equals to the seven-day interbank lending rate. If the profit margin of lending to peers and businesses is the same, the lender will rationally favor interbank loans with lower risks.
"Mortgages also have lower risk and capital consumption than corporate loans, therefore there's very little chance the banks will lend at the maximum discounted rate. Lenders' net interest margin will not be significantly impacted," the research company said.
Shares of Chinese banks fell in Shanghai yesterday. The Industrial and Commercial Bank of China, the nation's biggest lender, slumped 1 percent to 3.91 yuan (61 US cents). China Construction Bank shed 0.7 percent to 4.16 yuan. The Bank of China lost 0.4 percent to 2.81 yuan.
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