March 18, 2016 / 11:16 AM / 3 years ago

UPDATE 1-China cuts bank card transaction fees, helping merchants

* Lower ceiling on fees paid to banks to drop Sept 6

* Cuts will relieve pressure on merchants

* Move will cut bank fees, but impact ‘not big’ - analyst (Adds details, analyst quote)

BEIJING, March 18 (Reuters) - China’s central bank said on Friday it will cut the fees the country’s merchants pay for bank card transactions, a move that will lower their costs but cut income for lenders at a time their soured debt levels are increasing.

The action, to take effect on Sept. 6, will result in a 7.4 billion yuan ($1.14 billion) cut in the fees merchants pay in a year, the People’s Bank of China (PBOC) said on its website.

Under the coming policy, card-issuing banks cannot charge merchants more than 0.35 percent of a transaction amount for debit cards, while credit card transactions cannot incur a charge exceeding 0.45 percent of the amount swiped, according to the PBOC.

At present, the ceiling on fees that merchants pay varies, depending on the sector. Banks can charge restaurants, hotels, jewelry and auto businesses a maximum 0.9 percent of a transaction amount.

While merchants will benefit from the new rules, pressure on banks will be increased, said Xingyu Chen, a bank analyst at Phillip Securities (Hong Kong) Ltd.

However, he added that the impact “won’t be that big” as such fees are not a main source of income.

Bad loans increased to a decade-high last year as China’s economy grew at its slowest pace in over two decades.

Official data showed China’s banks had 1.3 trillion yuan of bad debt, for a non-performing loan ratio of 1.67 percent, at the end of 2015. Three months earlier, the ratio was 1.59 percent.

$1 = 6.4684 yuan Reporting by Beijing Monitoring Desk, Engen Tham in Shanghai and Shu Zhang in Beijing; Editing by Richard Borsuk

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