MNI BRIEF: China Banks To Suffer Narrow Interest Margin - BOC

China banks will continue to suffer narrower interest margin in 2024 as loan interest rates remain low, while funding costs stay high, and room exists for deposit rates to reduce further, according to Bank of China in its quarterly Economic and Financial Outlook report.

The state-owned bank estimated GDP would expand by 5.3% in 2023 and by about 5% next year as consumption and investment rise, while property investment continues to fall but at a smaller pace thanks to policy support. CPI and PPI will rise by 1.1% and 0.4%, leading to weak inflation, while real-estate developers debt defaults will remain a concern in 2024, the report noted.

BOC estimated authorities will set the fiscal deficit/GDP ratio at 3.5% in 2024 to boost the economy, while the central bank will cut the reserve requirement ratio and enhance structural tools to coordinate fiscal efforts. The report stated authorities could also reduce policy rates should local-government debt and the property sector require lower cost funding, noting M2 and the outstanding total social finance will increase by 10% and 9%, lower than 2023.