S&P gives thumbs up to move on rates
By Hu Xiaocen |
June 16, 2012, Saturday
|
Print Edition
Print Edition
THE recent cut in interest rates and relaxation of deposit rate controls is a giant leap for China's financial reforms, and will have a far-reaching impact on the nation's banking sector, Standard & Poor's Ratings Services said yesterday.
The People's Bank of China lowered borrowing and lending rates, effective on June 8, and allowed lenders to set deposit rates at a maximum of 10 percent above the benchmark rate.
The ratings agency said the relaxation is a big step in China's drive toward liberalizing interest rates and reforming the financial sector, while banking profitability is expected to erode over the next two to three years.
"We believe that the long-term benefits of a more efficient system of allocating credit and a more diversified loan portfolio could outweigh the short-term strain on Chinese banks' net interest income and profitability," the agency said in its latest report.
S&P estimated that lenders' return on average assets would reduce by 10 basis points, or US$17 billion, in 2012, and further down by 20 to 25 basis points, or US$42 billion, in 2013.
While S&P expected no significant impact from the central bank's recent actions, Moody's Investors Service said on Monday that the interest rate deregulation and cuts are positive for China's sovereign credit rating, but negative for local lenders due to the squeeze on their profits.
The People's Bank of China lowered borrowing and lending rates, effective on June 8, and allowed lenders to set deposit rates at a maximum of 10 percent above the benchmark rate.
The ratings agency said the relaxation is a big step in China's drive toward liberalizing interest rates and reforming the financial sector, while banking profitability is expected to erode over the next two to three years.
"We believe that the long-term benefits of a more efficient system of allocating credit and a more diversified loan portfolio could outweigh the short-term strain on Chinese banks' net interest income and profitability," the agency said in its latest report.
S&P estimated that lenders' return on average assets would reduce by 10 basis points, or US$17 billion, in 2012, and further down by 20 to 25 basis points, or US$42 billion, in 2013.
While S&P expected no significant impact from the central bank's recent actions, Moody's Investors Service said on Monday that the interest rate deregulation and cuts are positive for China's sovereign credit rating, but negative for local lenders due to the squeeze on their profits.
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