China banks scrap business class flights in bid to rein in costs

SHANGHAI – China banks are scaling back travel perks by telling staff not to fly business class and to book cheaper hotel rooms, part of moves to rein in spending at lenders already under pressure to embrace more frugal operations from President Xi Jinping’s “common prosperity” push.

Firms including Industrial Bank told bankers late last month that local branch executives and domestic business heads should book the cheapest seats possible on trains, according to people familiar with the matter. Budgets for accommodation in the country’s big cities were cut by at least 10 per cent per day, said the people. Other banks including China Minsheng Banking Corp. and China Citic Bank also tightened travel spending rules, said the people.

The latest moves add to efforts from other brokers and banks that are attempting to reduce costs in the face of pressure on margins and signals from China’s authorities to lower expenses. China’s Central Commission for Discipline Inspection last year told bankers to abandon the pretense of the “financial elite” by cleaning up their “hedonistic” lifestyles, while the Ministry of Finance has urged state-owned financial institutions to enhance budgetary measures, including salaries and trim costs.

China’s escalating push to have its banking behemoths backstop struggling property firms and local government financing vehicles has added to the maelstrom of woes for the US$57 trillion (S$75.8 trillion) sector.

Banks’ net interest margins sat at a record low 1.73 per cent as of September. That’s below a 1.8 per cent threshold widely seen as necessary to maintain a reasonable amount of profitability. Meantime, bad loans have hit a new high, and a revenue growth streak that’s run since 2017 for some of the nation’s largest state banks may be on course to snap this year.

Authorities have offered some relief to banks, guiding them to trim deposit rates and slashing reserve requirements to boost lending capacity. Those changes won’t be enough to offset the lending rate cut and arrest a margin slide, according to Fitch Ratings. Bloomberg Intelligence expects the margin squeeze to deepen into 2024 and weigh on earnings. BLOOMBERG

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