Experts: Lenders to face margin pressures

The latest round of interest rate cuts will add more pressure to the already shrinking interest margins of Chinese lenders and trigger fierce competition among them for deposits, industry experts said on Monday.

Effective Saturday, the People's Bank of China cut the one-year benchmark lending rate by 40 basis points to 5.6 percent and the one-year benchmark deposit rate by 25 basis points to 2.75 percent. Other benchmark deposit and lending rates were lowered accordingly, with a simplified term structure. The central bank also raised China's deposit rate ceiling from 1.1 times the benchmark to 1.2 times.

"The asymmetric interest rate cut could put significant pressure on the profitability of lenders. If banks offer 20 percent deposit rate premium and new benchmark lending rates (using one-year benchmark rates), the interest margin could be narrowed by 40 basis points," said Zhu Haibin, chief China economist at JPMorgan Chase & Co.