The government continues to set a ceiling on deposit rates and a floor on lending rates.
The government currently sets a floor on lending rates and a ceiling on deposit rates, allowing banks to easily profit from the gap between the two, but hurting Chinese savers.
Simultaneously, the ceiling on bank deposit rates was raised to 1.1x from 1.0x the benchmark rate, and the floor for lending rates was lowered to 0.8x from 0.9x.
When it comes to individual bank decisions on mortgage rates - and deposit rates for savers - the Bank is much less of a factor today than in more normal times, precisely because the official base rate has been so low, for so long.
It cannot relax its grip on lending and deposit rates and it cannot direct the banks to begin another round of lending to restart faltering growth.
It appears that local banks suffered both lost revenues, as the interlopers stole their fees and interest on loans, and also higher costs, as they offered higher deposit rates or spent more on advertising or service to keep hold of their customers.
They placed limits on interest rates, prohibited deposit-taking institutions from issuing securities, and, by preventing financial institutions from merging with one another, kept most of them relatively small.
China's move to reduce its benchmark lending and deposit rates also weighed on investors.
Ye Linfeng, a researcher with Cnbenefit, said that China's smaller banks, which typically started issuing wealth-management products later than the major banks, are trying to bolster their fee income out of concern that the central bank's efforts to liberalize interest rates will increasingly eat into the fixed margin between deposit and lending rates they have traditionally relied on to turn a profit.
Moreover, further cuts on local-currency (yuan) deposit rates are feasible, even though they are already lower than equivalent dollar-deposit rates.
Its deposit-taking prowess rested on alluring interest rates rather than relations with customers.
However, households in China will continue to suffer from artificially low deposit rates, which mean they earn very little return on their savings.
Nonprofit, membership-based credit unions, which often offer lower fees and better rates on bank products, have their own version of deposit insurance as well.
But in China, where most savings are in the form of bank deposits and where earnings on savings are a significant portion of total household earnings, lowering deposit rates tends to increase the savings rate.
But deposit spreads should widen as rates rise, because banks can delay passing on some of the extra interest to savers.
That said, there is an expectation that the European Central Bank will start to penalise banks for holding money on deposit with it, rather than using that cash to make loans, by charging negative interest rates for deposits.
Bank Indonesia, the central bank, expects its own deposit certificates to pay as low as 17% within nine months, depending on U.S. rates.
应用推荐