Chinese banks will undertake more “disciplined” loan pricing as smaller lenders’ capital constraints keep them from offering deeper discounts on credit, Daiwa Capital Markets said.
The People’s Bank of China in July began to allow lending at 30 percent less than officially set rates in an effort to revive growth amid six straight quarters of economic slowdown. China’s biggest banks are limiting discounts for their best corporate clients to 10 percent of the benchmark, officials at the top four lenders told Bloomberg News.
“Smaller banks are not in a position to compete given their capital shortage, provisioning pressures, and deposit constraints,” Hong Kong-based Grace Wu wrote in a note dated Oct. 11.
A squeeze on net interest margins, a measure of lending profitability, from the liberalization of interest rates may not be as bad as some investors expect because less than 10 percent of new loans this year are priced at a discount, she wrote.