SHANGHAI (Reuters) – Some Chinese state banks, such as Bank of China and Bank of Communications, will cut deposit rate ceilings on Monday, joining smaller lenders, sources told Reuters.

The planned cuts come a week after regulators encouraged smaller banks to lower the ceiling for their deposit rates. The moves will also coincide with China’s reduction in banks’ reserve requirements, effective on Monday.

Bank of China will cut the rates for time deposits of 2-3 year tenors by roughly 10 basis points, according to two banking sources. Bank of Communications will make similar moves, said another source.

Bank of China and Bank of Communications were not immediately reachable for comment outside working hours.

It was not immediately clear if other state banks, including Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Agricultural Bank of China will also cut deposit rates, but the sources say state lenders typically move in tandem on rate moves.

Beijing has repeatedly urged banks to reduce borrowing costs for smaller companies in an economy hit by COVID-19 outbreaks, fallout from the Ukraine crisis, and capital outflows triggered by U.S. monetary tightening.

To prod banks to lend more, the PBOC has announced it would cut the reserve requirement ratio (RRR) for all banks by 25 basis points, effective from April 25.

Rocky Fan, economist at Guolian Securities, said that cutting deposit rates could incentivize banks to reduce lending rates, by lowering their own borrowing costs.

“One major reason banks are reluctant to cut loan rates now, is that the move would hurt their margins.”

Lower deposit rates are also conducive to more effective use of money, and will benefit consumption and investment, Fan added.

In mid-April, the interest rate self-disciplinary mechanism, a top regulatory body overseen by the People’s Bank of China, urged smaller lenders to lower deposit ceilings on time deposits by about 10 basis points, sources told Reuters.

Banks including Industrial Bank and China Zheshang Bank have already made the adjustment, according to direct sources.

(Reporting by Samuel Shen, Kevin Huang and Ryan Woo; Editing by Raissa Kasolowsky and Emelia Sithole-Matarise)