Banks’ striking mobilisation move

Banks’ mobilising rates dropped below 6 per cent, per year, while current lending rates average 12-13 per cent, per year, resulted in big interest margin. Why?

Banks’ [mobilising] cost should be looked at in the medium and long-term, not simply the short-term [mobilising] rate.

Our institute has summarised the mobilising-lending interest margin at several banks for the many years in succession, which reflected that the difference in the mobilising and lending rate in the past decade was just 3.5 per cent at maximum. In 2012 alone, the gap averaged 2.2 per cent.

At this time, the gap was around 2 per cent. The rumour that banks are enjoying big difference level of 5-7 per cent was groundless. If the fact was true, people would jump into banking ventures.

The deposit rate has fallen to a 20-year low. Will this level still be attractive to depositors?

The interest rate below 7 per cent, per year is only applied to short-term deposits from one to two months. For deposits from three months to a year, most banks still apply 7-7.5 per cent rate which is still much higher than the inflation target. The depositors then still enjoy real positive interest rates.

In reality, in this context with property and securities investments being highly risky, putting money at banks has proven to be a safer and more cost-worthy investment method.

Since the interest rate is forecast to further go down, people had better deposit at banks in the medium and the long-terms for greater benefits.

Could the move fuel banks’ credit expansion when the lending rate has also relaxed in concert with softer mobilising rate?

The interest rate is only one among multiple factors affecting banks’ credit growth. Our studies of economic models showed that the interest rate only plays a minor part among factors influencing on credit growth.

For banks, not the interest rate, but mortgaged assets are a decisive factor to credit expansion. For firms, market consumption and the aggregate demand are most crucial factors to their decision on taking a loan or not.

The development practice during 2008-2012 showed that firms still borrowed at high rates, when they could sell their products and services, and they did not take loans even with low lending rates if they incurred high inventory levels.

The recent Banking Academy survey of 479 listed firms (not including property, insurance and banking entities) showed that firms did not want to borrow due to their big unsold stock, low consumption, but not primarily due to interest rates.

Around 70 per cent of firms queried said they would still live well with the lending rate ranging 12-15 per cent, per year.

Does this mean banks’ recent move to soften the interest rate will have few impacts on firms’ performance?

In my view, underperforming firms with constant losses due to their improper business tactics, could not survive even if they got capital infusions. For firms with temporarily incurring hardships, lower interest rate would provide an opportunity for their revival.