China’s stocks fell yesterday, capping the biggest weekly slide this year, after the country’s first interest-rate cut since 2008 intensified concern that the economic slowdown is deepening, ahead of today’s release of last month’s economic data that may show fixed-asset investment expanded at the slowest pace in a decade.
“Investors are quite concerned the data tomorrow may be very bad,” said Zhang Yanbin, an analyst with Zheshang Securities Co in Shanghai. “Investors are still contemplating the effects of the interest-rate cut.”
The Shanghai Composite Index slid 11.68 points, or 0.5 percent, to 2,281.45 at the close. The index sank 3.9 percent this week, the most since the five days ended on Dec. 16. The CSI 300 Index fell 0.7 percent to 2,542.33.
Industrial & Commercial Bank of China Ltd (中國工商銀行) and China Construction Bank Corp (中國建設銀行) led declines for lenders after Nomura Holding Inc and BoCom International Holdings Co said the rate cut would hurt bank earnings.
China’s biggest lenders raised deposit rates hours after the central bank lowered its benchmark and gave them more freedom over pricing, underscoring the competition for funds and driving their shares lower.
These big banks set the rate on demand deposits at 0.44 percent, according to their Web sites. That’s the maximum allowed under new rules that let them pay 1.1 times the 0.4 percent policy rate.
The People’s Bank of China (PBOC) on Thursday lowered the key one-year deposit and lending rates by 0.25 percentage point. The one-year lending rate declines by a quarter percentage point and the one-year deposit rate drops the same amount, to 3.25 percent.
“The changes in the lending and deposit rate bands will accelerate bank competition and squeeze net interest margins,” May Yan, a Hong Kong-based analyst at Barclays PLC, wrote in a note. After the change in regulation, investors “may start to see differentiated bank business models and performance, which could be long-term positive.”
The PBOC on Thursday said banks may pay as much as 10 percent more than the benchmark on deposits, the first time a premium is being allowed.
Lenders are also permitted to offer a 20 percent discount on borrowing costs, wider than the previous 10 percent, effective yesterday. The extra leeway banks will get to determine rates at variance from the official setting was called a “milestone” by UBS AG.
Chinese policy makers are stepping up efforts to combat a slowdown as Europe’s debt crisis threatens global growth. China this week also said it would delay tightening bank capital rules to the beginning of next year, signaling support for loan growth.
That followed three cuts since November last year to the amount of cash that banks are required to set aside as reserves. The government is propping up credit after new bank loans in April dropped 33 percent from March, missing economists’ forecasts, as demand for China’s exports dropped.