Chinese bank shares drop due to worries about a rate cut on existing mortgages.
Shares in China’s banking sector drop on worries of mortgage rate reduction
The banking sector in China is facing a double blow as concerns over the property sector crisis and a slowing economy are compounded by a potential reduction in existing mortgage rates. This has led to a 0.5% drop in China’s benchmark banking sector index and a 0.13% decline in Hong Kong’s Hang Seng Mainland Banks Index.
On a positive note, China’s CSI300 index has gained 0.3% and Hong Kong’s Hang Seng Mainland Properties Index has risen by about 1%.
According to three sources familiar with the matter, some Chinese state-owned banks are planning to lower interest rates on existing mortgages in an effort to revive the property sector. However, this reduction in mortgage rates is expected to further impact the profitability of the banking sector.
In their interim financial reports, three of China’s largest banks have already reported a contraction in their net interest margin (NIM) – a key measure of profitability – in the second quarter of this year.
Vivian Xue, director of APAC Financial Institution at Fitch Ratings, predicts that the revenue pressure on the banking sector will persist in the second half of this year and into 2024, due to narrowing NIM and weak retail loan demand.
(Reporting by Ziyi Tang and Ryan Woo; Editing by Sumeet Chatterjee, Robert Birsel)
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