China Increases Economic Support in Country Garden Vote

  • China’s five biggest banks cut interest rates
  • Vote at the developer’s Country Garden on Friday
  • The central bank reduces the amount foreign exchange banks are required to hold as reserves
  • The move is part of a broader set of measures to boost the economy

BEIJING, Sept 1 (Reuters) – China’s five biggest banks cut interest rates on various deposits on Friday as Beijing stepped up measures to boost the country’s economy.

China is grappling with a slowdown that has rocked global markets, focusing on the spiraling debt crisis of troubled developer Country Garden ( 2007.HK ) in a sector that contributes a quarter of the economy.

As pressure mounts, Chinese authorities have taken a series of steps to stimulate the economy and revive a crisis-hit property market, loosening some borrowing rules and reducing foreign exchange banks’ reserves.

On Thursday, Country Garden delayed the deadline to vote on whether to postpone payments on a 3.9 billion yuan ($537 million) private bond to 1400GMT on Friday to give creditors “sufficient time” to prepare for the vote.

The vote is a key hurdle as the developer’s dollar-denominated bondholders struggle to avoid default, saying the company cannot service its foreign bondholders if it can’t extend its domestic debt.

“It’s a slow-moving car crash,” said the bondholder, who declined to be identified because of the sensitivity of the issue, focusing on uncertainty about the broader economy and tensions with Washington.

“Everything they do now will have an impact five to 10 years from now.”

Country Garden, China’s largest private developer by sales, did not immediately respond to a Reuters request for comment.

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The pressure on property markets has intensified pressure on Beijing to implement support measures and fueled concerns about policymakers’ ability to stem a slowdown in China’s broader economic growth.

China’s new home prices fell for a fourth straight month in August, according to a private survey on Friday, as a property credit crunch kept confidence low despite string of support measures.

Reduction in deposit rates

Sep. The central bank on Friday said it would cut the foreign exchange reserve requirement ratio (RRR) by 200 basis points (bps) from 6 percent to 4 percent from 15, aiming to slow the yuan’s decline.

Lenders that cut mortgage rates on Friday included Industrial and Commercial Bank of China ( 601398.SS ), China Construction Bank Corp ( 601939.SS ) and Agricultural Bank of China ( 601288.SS ). 25 basis points, websites from each bank showed.

Three sources familiar with the matter told Reuters on Tuesday that big state-owned banks will cut deposit rates as they prepare to cut interest rates on existing mortgages, part of Beijing’s efforts to revive a credit crunch-hit property sector.

Sep. From 25, first-time home buyers with mortgages can apply to their banks for lower interest rates on existing loans, China’s central bank and financial regulator announced on Thursday.

China’s two largest cities, Guangzhou and Shenzhen, eased mortgage restrictions this week, expanding the definition of homebuyers enjoying preferential loans for first home purchases.

Lenders cut rates on one-year term deposits by 10 basis points (bps) to 1.55%, two-year term deposits by 20 bps and three-year and five-year term deposits by 25 bps.

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The deposit rate cuts are the third such cuts in a year, with larger cuts than the previous rounds in June and September last year.

Lower deposit rates will partially offset various pressures on banks’ shrinking net interest margins – a key measure of profitability, Moody’s Bank analyst Nicholas Zhu said.

“The impact of the deposit rate cut is significant, as three-quarters of Chinese banks’ loans are deposits,” Zhu said.

Several of China’s medium-sized banks, including Industrial Bank Co Ltd ( 601166.SS ) and China Bohai Bank Co Ltd ( 9668.HK ​​), also announced they would start cutting interest rates on deposits by 10-25 basis points from Friday.

China’s mortgage loans totaled 38.6 trillion yuan ($5.29 trillion) at the end of June, accounting for 17% of banks’ total loan books.

($1 = 7.2633 Chinese Yuan Renminbi)

Reporting by Ziyi Tang, Ryan Woo and Wang Jing, additional reporting by Davide Barbuscia in New York; Edited by Ann Marie Rowntree and Lincoln Feast

Our Standards: Thomson Reuters Trust Principles.

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