BEIJING/SHANGHAI  - Five of China's major state-owned banks on Thursday cut deposit rates to cushion a hit to their already record low margins after this week's surprise lowering of lending benchmarks to bolster stuttering economic growth.

Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China, China Construction Bank , Bank of China and Bank of Communications cut deposit rates by 5 to 20 basis points, according to statements on their websites.

It marks the first broad reduction in deposit rates by Chinese banks since December last year. There were three cuts in 2023. Prior to that, Chinese lenders had broad cuts to deposit rates in late 2022, their first such move since 2015.

More banks will likely follow the big state-owned lenders with deposit rate cuts.

The cuts come as commercial banks' net interest margins - a key gauge of profitability - narrowed to a record low of 1.54% at the end of March this year.

China surprised markets by cutting major short and long-term interest rates on Monday to bolster growth in a struggling economy.

That was followed by another surprise on Thursday when the central bank conducted an unscheduled lending operation at steeply lower rates, as authorities sought to shore up the faltering economy with more monetary stimulus.

Reducing deposit rates would help lower funding costs for banks at a time when they are under pressure to support economic growth amid a property crisis, weak loan demand and record low interest margins.

"The cuts to deposit rates will enable banks to have more room to implement lending rate cuts, otherwise banks will lack motivation to do that given their enormous profit margin pressure," said Nie Wen, an economist at Shanghai Hwabao Trust.

Smaller banks will likely follow suit but with milder cuts to deposits, amid fierce competition to win customers, said Nie.

ICBC cut its demand deposit rate by five basis points to 0.15% and one-year deposit rate by 10 basis points to 1.35%. Rates on deposits of two years or more were cut by the bank by 20 basis points to 1.45% to 1.8.

Gary Ng, Asia-Pacific senior economist at Natixis, expects China to see further benchmark lending rate cuts by 15 basis points this year if there is no improvement in the country's economic data.

"Chinese banks face quite a different dilemma nowadays than in the past," said Ng. "Any change in lending rates must come with lower deposit rates and bank funding costs."

Lowering deposit rates will encourage corporate investment and household consumption, the Chinese central bank-backed media outlet Financial News said on Thursday.

"It promotes the optimisation of asset allocation, enhances the momentum of funds flowing into the capital market, aids in stabilising and boosting the stock market...and consolidates the trend of economic recovery and improvement," the outlet said.

Analysts, however, said the latest deposit rate cuts might not be enough to redirect savings into consumption and investment, due to consumers' weak income prospects and deflationary pressures.

"It will either take greater rate cuts or a big improvement in sentiment to drive demand," said Ng.

(Reporting by Beijing and Shanghai newsroom; Editing by Sumeet Chatterjee, Jamie Freed and Sam Holmes)