Weak deposit growth hammers China’s banks

Loans exceed deposits at a faster pace.

China’s largest lender, the Industrial and Commercial Bank of China Ltd, and other banks are now paying more for savers' money and are being hit by falling margins.

ICBC said loans were growing at a faster rate than deposits. Deposits rose 4.5% while loans rose 5.2%, the bank said. Another Big Four state-owned bank, Agricultural Bank of China Ltd, reported similar numbers, with its loan book growing about 10% faster than its deposit base.

Analysts noted there has been growing competition among banks for savers who are able to deposit large amounts of money. This has increased savings rates but means margins will likely narrow this year.

AgBank's net interest margin fell to 2.78% from 2.81% in 2012, while China Construction Bank Corporation, another Big Four bank, saw a fall to 2.71% from 2.75%.

ICBC did not release its net interest margin numbers, but \said in late March its margins would come under pressure in the first half of 2012.

The slowdown in deposit growth comes as a growing portion of retail savings flows into higher-risk Chinese investment tools called wealth management products with the pace picking up since late 2012.

Much of the banks' deposit growth in 2012 had been driven by the growing popularity of wealth management products. However, China's banking regulators said they had increased regulation of those products, hampering their growth this year.

ICBC said late in March that it issued more than US$162 billion worth of WMPs in 2012, helping to boost new deposits by US$195 billion.