• China has lowered key policy rates, slashed mortgage costs

• Lenders are under growing pressure from record low margins

Chinese banks are set to trim rates on 300 trillion yuan ($42.3 trillion) of deposits as soon as this week after the latest barrage of stimulus policies further squeeze their profitability, according to people familiar with the matter.

Major banks including Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. will be guided by the central bank’s interest rate self-disciplinary mechanism to lower the rates on a number of deposit products, said the people, who asked not to be identified discussing a private matter.

Rates on one-year time deposit may drop by at least 20 basis points, while those on longer tenors may come down at least 25 basis points, the people said. The plans have yet to be finalized, they said.

The cuts would mark the second such reduction this year, following the previous round in late July. The People’s Bank of China didn’t immediately respond to a request for a comment.

The moves come after China unveiled its biggest package yet to shore up its sputtering economy, slashing policy rates as well as the borrowing costs on $5.3 trillion in outstanding mortgages.

The PBOC last month delivered the biggest-ever decrease to the interest rate charged on its one-year policy loans. Governor Pan Gongsheng also said reduction in deposit rates would follow suit.

China’s commercial banks have had some leeway in setting their own rates since the central bank scrapped direct control in 2005. The People’s Bank of China, however, maintains substantial sway by setting a ceiling and floor for rates through the interest rate self-disciplinary body.

Chinese banks implemented a broad cut in deposit rates in late 2022, the first such move since 2015, after authorities urged them to boost lending. They lowered deposit interest three more times last year.

Despite the reductions, the industry’s net interest margins have been falling and hit a record low of 1.54% at the end of June, well below the 1.8% threshold regarded as necessary to maintain reasonable profitability.

Bloomberg reported earlier that China is considering injecting up to 1 trillion yuan of capital into its biggest state banks to increase their capacity to support the world’s second-largest economy.