Interest-Income Tax Cut !

China Bank Shrs Jump;Rumors On Interest Income Tax2007-6-15 03:22:00 p.m.

China bank shares gain with several players in market citing rumor Beijing will move as soon as this weekend to cut or scrap interest-income tax, in bid to deter investors from switching funds from bank deposit to stock market; Shanghai Pudong Development Bank (600000.SH) +6.5% at CNY36.37, Industrial Bank (601166.SH) +7% at CNY31.70. Liquidity in bank system turning somewhat tight after repeated reserve ratio hikes, as investors withdraw savings from deposits for stocks; such tax move would help ease banks' short-term liquidity pressure, analysts say. Could give PBOC some room to let rate hikes filter into economy before moving again, given tax cut/scrapping would have similar effect to hiking deposit rate, in terms of making deposits more appealing. Source at local asset management firm says talk is China will halve interest-income tax rate to 10% (Currently 20%) next week while player at local brokerage has heard rumor tax to be abolished; no word as yet though from government officials.
ICEA points out mainland banks "still rely heavily on earnings from interest spread" although they have been working hard to increase non-interest income; thinks if interest-income tax scrapped, in next rate hike central bank may just raise lending rate but not deposit rate, thus benefitting banks. Adds ICBC, BOC likely to benefit most as they have higher portion of time deposits