China expected to cut LPR by 10 bp this month for first time since Aug 2022 – JPMorgan

 

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China’s benchmark lending rate – Loan Prime Rate (LPR) is expected to be lowered by 10 basis points this month for the first time since August last year, after the PBOC’s move to cut the interest rate on the 7-day reverse repo by 10 basis points on Tuesday, JPMorgan said in a note.

As the negative impact of the rate cut on domestic banks is likely to be offset by the drop in deposit rates last week, the rate reduction should only have a slight impact on bank earnings, the bank said.

JPM expected Mingsheng Bank to benefit most from the LPR and deposit rate cuts, as its interbank liabilities are higher than its interbank assets, so it can benefit from the lower market interest rates after the reverse repo rate cut. Its time deposit ratio is higher at 66%, which enjoys from a more substantial interest rate reduction than demand deposits.

The bank noted that, as China Merchants Bank has more demand deposits, it may be affected by the rapid transmission of deposit rate reduction, driving up its net interest margin in the third quarter.