Five of 16 listed Chinese banks raised their one-year deposit rates to the ceiling of the regulatory benchmark, in a mixed response by lenders to China’s latest interest rate liberalization.

China Citic Bank Corp., Ping An Bank Co. (000001), Huaxia Bank Co. (600015), Bank of Nanjing Co. and Bank of Ningbo Co. are offering 3.3 percent to one-year deposit holders, according to their websites. The five biggest listed lenders — Industrial Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd., Bank of China Ltd. and Bank of Communications Co. — are offering 3 percent, compared with the 2.75 percent benchmark.

The central bank’s latest asymmetric cuts of 40 basis points in its one-year lending rate and 25 basis points in the deposit rate are set to narrow profit margins at banks. Banks have the option of offering depositors as much as 120 percent of the benchmark rate, up from a previous ceiling of 110 percent. Offering the maximum could narrow a bank’s interest rate margin, a key source of profit, by 40 basis points, according to JPMorgan Chase Co.

The asymmetric nature of the central bank’s move is “unusual,” and the smaller deposit rate cut “will be offset by the upward adjustment to the deposit rate ceiling to a certain extent,” Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong, wrote in a note. “This will likely further squeeze banks’ margins.”

China Everbright Bank Co. (6818) and China Merchants Bank Co. also set the one-year deposit rate at 3 percent, while Bank of Beijing Co., China Minsheng Banking Corp., Shanghai Pudong Development Bank Co., and Industrial Bank Co. set their rates at 3.025 percent.

Bad Loans

As China heads toward its weakest economic expansion since 1990, the nation’s banks are grappling with smaller profit margins and rising bad loans. Soured lending jumped by the most since 2005 in the third quarter, according to the country’s bank regulator.

Giving banks more room to set deposit rates “is another important step towards the ultimate goal of interest rate liberalization,” Jiang Jianqing, the chairman of ICBC, the country’s largest bank, said at a financial forum yesterday. It will “inevitably squeeze the profit margins of banks, and the narrower margin is a long-term trend,” he said.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net; Jun Luo in Shanghai at jluo6@bloomberg.net

To contact the editors responsible for this story: Stanley James at sjames8@bloomberg.net Jim McDonald, Terje Langeland