Deposits, interest rates have been cut!

Author: Yu Fei

The third round of deposit interest rate cuts this year is coming.

According to the Financial Associated Press, major banks such as the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, and the China Construction Bank have lowered the listed interest rates on RMB deposits since today. Among them, the listed interest rate of one-year and less lump sum time deposits was reduced by 0.1%, the listed interest rate of two-year lump sum deposit and lump sum time deposits was reduced by 0.2%, and the listed interest rates of three-year and five-year lump sum time deposits were reduced by 0.25%.

After the adjustment, the 3-year time deposit rate fell below 2%, from 2.2% to 1.95%. In addition, the listed interest rates of 3-month, 6-month, 1-year, 2-year and 5-year time deposits were reduced to 1.15%, 1.35%, 1.45%, 1.65% and 2.0% respectively after adjustment.

This is the third time this year that there has been a large-scale deposit rate cut, the first in June and the second in September.

Source: Interface News

Why are banks so happy to cut deposit rates?

For no other reason, deposits are soaring, lending rates are falling, and banks' profit margins are being compressed, forcing them to keep lowering interest rates on deposits, and at the same time, making room for next year's interest rate cuts.

First, deposits are soaring.

In the past three years, under the flood of uncertainty and the asset shortage under the transformation of the real estate market, many people with spare money do not dare to invest or consume, but save money frantically.

How crazy is that? Just look at a set of data.

According to data disclosed by the central bank, in 2022, deposits in the household sector increased by 17.84 trillion yuan in one go, nearly double that of the whole of 2021.

What was the situation in the first 11 months of this year?

According to the data disclosed by the central bank, the deposit of the household sector increased by 14.42 trillion yuan in the first three quarters, and the household deposit decreased by 636.9 billion yuan in October and increased by 908.9 billion yuan in November.

Based on this total, it can be concluded that household deposits in the first 11 months were 14.69 trillion yuan. It could exceed 15 trillion for the whole year.

This scale, although not as exaggerated as in 2022, is already close.

Mapping: City Finance, Data: Central Bank

Deposits are increasing, and banks need to bear more interest expenses.

Crucially, interest rates on loans are falling.

Second, loan interest rates are declining, squeezing banks' profit margins.

Since the interest rate swap in the loan market, the LPR interest rate has been continuously reduced.

In 2019, the one-year LPR cut interest rates twice, and the five-year LPR cut rates once.

In 2020, both the one-year and five-year LPRs cut interest rates twice.

In 2021, the one-year LPR rate was cut once, and the five-year rate was unchanged.

In 2022, the one-year LPR cut interest rates twice, and the five-year LPR cut rates three times.

So far in 2023, the one-year LPR has cut interest rates twice, and the five-year LPR has cut interest rates once.

To sum up, since 2019, the one-year LPR has cut interest rates 9 times, and the lending rate has dropped from 4.31% to 3.45% today.

The five-year LPR has cut interest rates seven times, and the lending rate has been reduced from 4.85% to 4.2%.

Source: China Money Network

The fall in lending rates means that the pressure on banks' incomes has increased. What's more, the increase in bank loans in recent years has not been impressive.

Under the double attack, the decline in bank deposit rates is expected and reasonable.

After all, banks' net interest margins continue to narrow.

Source: Interface News

In addition to easing net interest margins, that is, easing pressure on banks' margins, deposit rate cuts serve two other purposes.

First, promote consumption.

Judging from the PPI and CPI data, the consumer market is still very cold.

If a society lacks consumption and cannot sell things, then the factories will not be able to move, the things produced will not be sold, and the industry will be hindered.

Consumption is an important driving force for economic growth.

GDP grew by 5.2% in the first three quarters of this year, with consumption contributing the main factor.

In terms of consumption, final consumption expenditure contributed the most to economic growth in the third quarter, with a contribution rate of 94.8%, the highest level since data were available, driving economic growth in the quarter by 4.6 percentage points.

Investment: As investment growth continued to slow down, the contribution of gross capital formation to economic growth fell to 22.3% from 32.8% in the second quarter, driving GDP growth by 1.1 percentage points.

In terms of exports, net exports of goods and services contributed -17.1% to economic growth, pulling down GDP by 0.8 percentage points.

Investment continues to be weak, and exports are affected by the external environment and are relatively weak. Therefore, only by enhancing the certainty of consumption can the certainty of economic growth and employment growth be enhanced.

At the recent Central Economic Work Conference, the second item was to focus on expanding domestic demand.

Second, make room for interest rate cuts next year.

In the two recent heavyweight meetings, the first emphasized "strengthening macroeconomic policy counter-cyclical and cross-cyclical adjustments".

This statement states that counter-cyclical precedes trans-cyclical. It shows that next year's macro monetary and fiscal policies will be more stable, but tend to be more accommodative.

At the second meeting, the document clearly stated that "it is necessary to strengthen the counter-cyclical and cross-cyclical adjustment of macroeconomic policies, continue to implement a proactive fiscal policy and a prudent monetary policy, and strengthen the innovation and coordination of policy tools." ”

Experts predict that the central bank will continue to cut the reserve requirement ratio and interest rates next year, but there is not much room for it, perhaps close to 2023. At the same time, the Fed's interest rate hike cycle is coming to an end, which also gives us room to continue to cut rates.

Lending rates will also fall, putting further pressure on banks' net interest margins, and banks will have to cut deposit rates further.

Therefore, if there are more frequent interest rate cuts next year, the interest on deposits will fall further.