China Bank Reform Will be End of Risk Free Profits

Beijing’s move to scrap the floor on lending rates is not yet a game-changer for Chinese banks, but it may have just started the countdown to an eventual industry overhaul which will deprive the banks of virtually risk-free profits.

China bank stocks mostly fell on Monday, the first trading session following the rate reform announced late on Friday. An index of banks listed in Shanghai .SSEBKI was down 1.7 percent in late morning trading, compared with a decline of 0.4 percent for the broader Shanghai Composite Index .SSEC.SS.

Any liberalization is seen as positive for China’s financial sector and the world’s second-largest economy. But many Chinese investors fear the nation’s banks, which for years have made easy profits from state-mandated spreads between borrowing and lending rates, will struggle to benefit from more competition.

via Reuters

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