The central bank's increased deposit interest at the expense of lending rates that became effective yesterday is not expected to cool off stock-market investors.
Seven of the 12 Chinese mainland listed banks yesterday posted growth while the remaining five slipped.
The People's Bank of China unexpectedly announced on late Tuesday that the benchmark deposit interest rates, effective yesterday, rose 0.27 percentage point on all front, while that for the lending rates was pruned 0.18 percentage point.
"Banks of course make most of their money off the margin between loan and deposit rates so the central bank is cooking up some pressure on the banks as the margin contracts," said Stephen Green, a Standard Chartered Bank senior economist.
It is the second time this year the central bank has moved more on deposit than loan rates.
Qiu Zhicheng, a Haitong Securities Co analyst, said the rate increase, despite the general widening gap between deposit and lending rates, may still boost banks' interest spread after breaking down the type of deposits.
The central bank kept the current deposits rate unchanged, so the main cost burden from the deposits is for term deposits, which accounted for about 55 percent of total loans in general, he said.
So the real added deposit cost for lenders are about 0.15 percentage point, still lower than the overall lending interest rate increase of 0.18 percentage point, he said.
His view is echoed by She Minhua, a China Securities Co analyst.
Residents are channeling capital from deposits to the booming stock market.
There is also a trend for residents to shift fixed deposits to current deposits for the convenience of buying funds or stocks.
The benchmark Shanghai Composite Index has risen 83 percent this year after soaring 130 percent in 2006.
The effect of the rate increase may turn around if the stock market cools off and residents turn back to term deposits for savings, Qiu added.
Shanghai Pudong Development Bank yesterday led the upswing of listed lenders on a rosy interim performance. The bank reported a net profit rise of 59.3 percent to 2.55 billion yuan (US$336.86 million) in the first half. Its earnings per share rose 42.9 percent to 0.586 yuan in the period.
The benchmark Shanghai Composite Index rose 0.5 percent to 4,980.08 yesterday.
(Shanghai Daily August 23, 2007)
