Small and medium-sized banks have intensively lowered deposit rates and there is still room for “interest rate cuts”
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Small and medium-sized banks in many places in China are intensively adjusting deposit interest rates. The industry believes that this is a continuation of last year’s reduction of deposit interest rates by major state-owned banks, and there is still room for banks to “cut interest rates” in the future.
Recently, many small and medium-sized banks in Shanxi, Shaanxi, Henan, Yunnan, Guizhou and other places have intensively announced reductions in time deposit interest rates, mostly rural commercial banks and rural banks. The adjusted deposit products involve different maturities such as three months, six months, one year, two years, and three years, with interest rate reductions ranging from 5 basis points to 45 basis points.
Zhou Maohua, a macro researcher at the Financial Markets Department of China Everbright Bank, believes that the intensive reduction of deposit interest rates by rural commercial banks and other small and medium-sized banks is related to two factors. First, in recent years, Chinese residents’ savings have grown rapidly, much higher than the trend level, and the overall deposit market has shown that supply exceeds demand; second, in recent years, banks have continued to benefit from the real economy, and some banks have increased pressure on their net interest margins, and banks have been proactive in managing liability costs. Sexuality is significantly improved.
The interest difference between deposits and loans is the main source of income for Chinese banks. Since 2023, the banking industry has continued to benefit the real economy through various methods such as lowering new loan interest rates, adjusting existing mortgage interest rates, and loan repricing, and the interest spread space has narrowed. Data show that as of the end of 2023, the net interest margin of Chinese commercial banks has dropped to 1.69%, falling below the 1.7% mark for the first time.
Judging from the recently released annual reports of listed banks, their overall net interest margins have also continued the downward trend in recent years. Zhou Maohua said that reasonably lowering deposit interest rates will help some small and medium-sized banks reduce liability cost pressure.
Zou Lan, director of the Monetary Policy Department of the People’s Bank of China, previously stated that through the coordination of the self-regulatory mechanism, large banks will take the lead in adjusting deposit interest rates according to changes in market conditions, and small and medium-sized banks will follow up and make supplementary adjustments based on their own conditions to maintain a relative difference in deposit interest rates with large banks. Stability is conducive to maintaining the order of market competition, ensuring the stability of bank liabilities, maintaining reasonable interest margins, achieving sustained and sound operations, and enhancing the ability and sustainability to support the real economy.
Is there room for bank deposit interest rates to fall in the future? Recently, the Monetary Policy Committee of the People’s Bank of China held a regular meeting for the first quarter of 2024 and pointed out that it will improve the formation and transmission mechanism of market-oriented interest rates, enrich the monetary policy toolbox, give play to the guiding role of the central bank’s policy interest rates, and release the loan market quotation rate reform and the deposit interest rate market We will optimize the effectiveness of the adjustment mechanism and promote the stabilization and decline of corporate financing and residents’ credit costs.
The chief economist of CITIC Securities clearly believes that considering the background of financial benefits to the real economy and loan interest rates continuing to decline, bank deposit interest rates will be easy to fall but difficult to rise in the future.
He said that the reduction in bank deposit interest rates may lead to an overall downward trend in broad-spectrum interest rates. For banks, liability costs are expected to be controlled and net interest margin pressure will be reduced. However, at the same time, it will be more difficult to obtain reserves and they need to explore more diverse channels for obtaining reserves and investment directions. For savers, as the income from deposits decreases, they may invest part of their funds in low-risk asset management products such as bank financial management, increasing the scale of the asset management market.
The Bank of China Research Institute reported that in recent years, due to the rapid decline in loan interest rates and the rigidity of deposit interest rates, the net interest margin of the banking industry has fallen to historical lows. Recently, the financial management authorities have been continuously promoting the reduction of bank deposit interest rates and rectifying the problem of attracting deposits at high interest rates. It is expected that banks will continue to reduce deposit interest rates in the second quarter of this year.
Zhou Maohua believes that in the face of rising pressure on net interest margins and rising liability costs, it is not ruled out that bank deposit interest rates may still be moderately lowered. This will expand space for financial support to the real economy, and also enhance the risk compensation capability of the financial system and maintain the stability and sustainability of the financial system. Intrinsic requirements for operation.
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