China's biggest banks are lowering the deposit rates offered to savers, a move that could pave the way for the central bank to make interest-rate cuts to spur economic growth.

Five state-owned lenders and joint-stock bank China Merchants Bank said the rate cuts took effect on Friday. The five were Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications.

Interest rates on time deposits with a tenure of three months, six months and one year were cut by 0.1 percentage points, while the rate on two-year deposits was lowered by 0.2 percentage points, according to statements and information posted by the banks. Rates on three- and five-year deposits were lowered by 0.25 percentage points each.

"Lower deposit rates should help alleviate pressures on banks' net interest margins and lay the groundwork for the PBOC to cut its policy lending rates in January, which have been left unchanged for the past four months," Lu Ting, an economist at Nomura, said in a note Friday.

Industry wide, banks' net interest margin--the difference between the rates lenders offer for deposits and what they charge on loans--slipped to a record low of 1.73% as of September, according to official data.

Beijing cut lending rates several times during and after the pandemic to stimulate economic growth, which has squeezed the profitability of the nation's commercial banks. The profit squeeze limits the room banks have to lower loan rates further.

China's benchmark lending rates were held steady this month, the central bank said Wednesday.

After Friday's move, Lu, the Nomura economist, expects China's central bank to lower policy lending rates in January, which would then lead to benchmark rate cuts.

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(END) Dow Jones Newswires

12-21-23 2250ET