China on Friday stepped up measures to boost the country’s faltering economy: major banks paved the way for further cuts in lending rates and authorities cut the amount of funds institutions must hold in foreign reserves.
China is facing a slowdown that has rocked global markets, with attention now focused on the developer’s debt crisis Country Gardena sector that represents approximately a quarter of the economy.
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As the pressure mounts, the Chinese authorities have launched a series of measures to stimulate the economy and revive the real-estate marketaffected by the crisis, including the easing of some borrowing rules and a cut in the amount of foreign currency that banks must hold as reserves.
On Thursday, Country Garden pushed back to Friday 1400 GMT the deadline for creditors to vote on whether to postpone payments on a 3.9 billion yuan ($537 million) private bond, in order to give holders of bonds “enough time” to prepare for the vote.
The vote is a key hurdle Country Garden faces in its efforts to avoid default. One of the developer’s dollar bondholders says that if the company cannot expand its internal debt, it will be unable to service external bondholders.
“This has been a slow traffic accident”, said the bondholder, who declined to be named due to the sensitivity of the matter, adding that concerns centered on uncertainty about the broader economy and tensions with Washington.
“Everything they do now will have repercussions five to 10 years from now.”
Country Garden, the largest private developer in China for sales, he did not immediately respond to a Reuters request for comment.
The tension in the housing market has intensified pressure on Beijing to implement support measures and has fueled concerns about the ability of economic leaders to stem a decline in China’s broader economic growth.
New home prices in China fell for the fourth straight month in August, according to a private survey released on Friday, as the real estate debt crisis kept confidence at lows despite a string of support measures.
Deposit rate cut
The central bank announced on Friday that it will cut the foreign exchange reserve requirement (RRR) ratio by 200 basis points (bp) from 6% to 4% from September 15, a move that will be considered destined to slow down the rate of decline of the yuan.
Among the banks that lowered mortgage rates on Friday included Industrial and Commercial Bank of China, China Construction Bank Corp and Agricultural Bank of China, which cut their deposit rates by between five and 25 basis points, according to each bank’s websites.
The measures helped boost market confidence and battered property values rallied, with China’s CSI 300 property index rising 2.4% in afternoon trading.
Three sources familiar with the matter told Reuters on Tuesday that major state-owned banks would cut deposit rates as they prepare to lower interest rates on existing mortgages soon, as part of Beijing’s efforts to revive the sector. real estate, affected by the debt crisis.
Starting September 25, first-time homebuyers with mortgages will be able to ask their banks for a lower interest rate on their existing loans, the central bank and financial regulator of China.
Two of China’s largest cities, Guangzhou and Shenzhen, also eased mortgage restrictions this week, broadening the definition so homebuyers can enjoy preferential loans for their first-time home purchases.
The banks reduced the rates on one-year fixed-term deposits by 10 basis points (bp), to 1.55%, and two-year fixed-term deposits by 20 bp and 25 bp on three and five years.
The reduction in deposit rates is the third in a year and its magnitude is greater than that of the previous rounds in June and September of last year.
According to Nicholas Zhu, a banking analyst at Moody’slower deposit rates will partly offset pressures on banks’ net margins, a key indicator of profitability.
“The impact of the cut in deposit rates is important, given that about three-quarters of the liabilities of Chinese banks are deposits,” Zhu asserted.
Several medium banks of Chinaincluding Industrial Bank Co Ltd and China Bohai Bank Co Ltd, also announced that they will start cutting interest rates on a range of deposits from Friday by between 10 and 25 basis points.
As of the end of June, home loans in China stood at 38.6 trillion yuan (US$5.29 trillion), accounting for 17% of banks’ total loan portfolio.
Source: Gestion
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