According to Bloomberg, Chinese banks are poised to pass on higher funding costs to customers as they seek to prevent interest margins from contracting further amid rising short-term borrowing rates. With profit growth slowing to the weakest in more than a decade, the firms have no choice but to push their lending rates higher, according to brokerages including China Merchants Securities. Smaller banks, in particular, are under more pressure as they are increasingly reliant on wholesale funding. The nation’s central bank has been sending signals this year that it’s tightening monetary policy to reduce financial-system risks and Chinese lenders have few options but to absorb much of the higher costs. The gap between the three-month Shanghai Interbank Offered Rate and the one-year lending rate has narrowed to 7 basis points, the least since July 2011.
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