(Yicai) July 25 -- China's five biggest state-owned banks pared their deposit rates for the first time this year, reaching below 2 percent, shortly after the central bank lowered its loan benchmarks as lenders balance to overcome low spreads.

Industrial and Commercial Bank of China, the nation's largest lender, said yesterday that its two-year time deposit rate will be cut to 1.45 percent, down from 1.65 percent. Three-year deposits will carry a rate of 1.75 percent, down from 1.95 percent, and five-year deposits will have a similar cut to 1.8 percent. ICBC's three-month deposit rate fell 0.1 percentage point to 1.05 percent, and those of six-month and one-year deposits were trimmed the same to 1.25 percent and 1.35 percent, respectively.

Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of Communications followed suit the same day, marking the first collective reduction since last December.

Judging from experience, other national commercial banks will do the same in the near future while regional medium and small-sized banks may adjust their rates in batches, an industry insider pointed out.

This week, the People's Bank of China made a surprise move of linking up an interest rate cut in short-term open market operations with reductions in mortgage and household loan benchmarks. The rate of its seven-day reverse repo operations was narrowed to 1.7 percent from 1.8 percent, marking the first cut since August. Moreover, one-year and five-year loan prime rates were trimmed by 10 bips to 3.35 percent and 3.85 percent, respectively.

In April 2022, the PBOC announced the setup of a market-oriented mechanism to adjust deposit rates, encouraging commercial banks to proactively adjust their deposit rates based on the LPR. Since then, major commercial banks have slashed their rates five times, with an accumulated cut of about 100 bips for three-year and five-year deposits.

The sustained cuts of deposit rates mostly aim to slow the contraction of net interest rate spreads. The difference between deposit rates and loan rates, a major source of income at commercial banks, has continuously narrowed as China has been lowering its loan rates to support economic growth in recent years. As of March 31, the spread fell to 1.54 percent, the lowest ever, according to data disclosed by the National Financial Regulatory Administration.

Editors: Dou Shicong, Emmi Laine