Competition among small and big Chinese banks increasing

Small Chinese banks are taking away business from their bigger, state-owned rivals with simple offerings such as higher interest rates.

"Big banks face strong pressure due to drains from their deposit accounts, and they also need to prepare for the first half-year's assessment," said a dealer at a Chinese bank in Shanghai.

Deposits at China's "Big Four" banks dropped by US$43 billion in the first two weeks of this month, said the 21st Century Business Herald, a Chinese financial newspaper.

Money dealers said China's big banks were being challenged by higher deposit rates being offered by smaller banks. Dealers said rates are rising as big banks seek more funds because of deposit outflows following recent changes in rate offerings.

The People’s Bank of China, the central bank, this month cut the official rate on one-year deposits to 3.25% as part of a move to stimulate economic growth. It did, however, allow banks to exceed this benchmark.

Banks can now offer rates of up to 110% of the benchmark, or up to 3.58% currently, which small banks are exploiting against their larger rivals.