Investors sold Chinese bank shares on Friday after Thursday night’s surprise rate cut, which appears aimed at putting more money into the economy at the expense of lender profitability.
The People’s Bank of China on Thursday announced second rate cut in a month, dropping lending rates to 6% from 6.31% and giving them more room to price loans lower. The changes could squeeze the minimum spread between rates on loans and deposits to as little as about 1.2 percentage points from 1.5 percentage points.
UBS Securities analyst Li Yamin says the policy changes will likely have a limited impact on banks’ net interest margin and earnings. She notes less than 5% of outstanding loans are priced below the benchmark rates.