Interest rate cuts to squeeze bank margins

SHANGHAI: Profitability of Chinese banks are likely to come under pressure next year after the steep reduction in lending rates, according to bankers and economists.

The central bank while announcing the measures last week had also cut the reserve money requirements for banks and removed curbs on lending. These moves will squeeze interest spread of banks, but at the same time boost the total lending amount, they said.

The lower lending rates, bankers and economists said, have lowered the financing burden for most of the banks and also reduced the chances of loan defaults.