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Banks' cost could rise by 20b yuan due to surging fixed deposits

By Xu Shenglan (chinadaily.com.cn)
Updated: 2008-09-04 17:41

The reports of 14 listed banks' half-year performances revealed that an increasing number of demand deposits were turned to fixed ones, which may cost banks more than 20 billion yuan this year, National Business Daily reported today.

Besides Bank of Beijing, Minsheng Banking Corporation and Bank of Nanjing, the proportion of demand deposits in the other 11 banks decreased from last year. The data showed demand deposits declined from 52.04 percent of total deposits in 2007 to 49.48 percent in the first-half of this year.

Fixed deposits in the first-half mainly come from enterprises, whose demand deposits dropped 2.76 percent and fixed deposits rose 3.06 percent, according to financial analyst Hu Jianjun of Hongyuan Securities.

The rising interest rate on fixed deposits and the downturn of the stock market and the housing sector led to the increasing proportion of fixed deposits among listed banks, said Hu.

Moreover, more fixed deposits will add banks' interest expenses, which are expected to be an additional 20 billion yuan this year. In the next half of the year, fixed deposits will continue to rise, Hu said.

Fixed deposits relate to market and real estate closely, said Wang Yifeng, a banking industry analyst at TX Investment Consulting Co. Although he thinks the real interest rates will remain negative given the higher inflation rate, he agrees that fixed deposits and bank interest costs will increase in the next half.

The rising costs and interest expenses will exert negative effects on bank performance, so other measures, like selling insurance, can be used to lead clients to invest in order to ease this problem, he suggested.