The deposit rate was lowered three times during the year, and the three-year and five-year tenors were reduced to the edge of 2%.

Following the new round of deposit interest rate adjustment of the five major banks of ICBC, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications and China Merchants Bank on December 22, joint-stock banks collectively followed up this Monday. (For details, see the report: "A New Round of Deposit Interest Rate Adjustment Landed, What's Different This Time?")

On the morning of December 25, China CITIC Bank, Ping An Bank, Everbright Bank, Zheshang Bank, Shanghai Pudong Development Bank, Bohai Bank, Minsheng Bank, Huaxia Bank, Hengfeng Bank, Guangfa Bank and other joint-stock banks all updated the deposit listed interest rates through official channels. After this adjustment, the 3-year fixed deposit listed interest rate of many joint-stock banks has also dropped to the edge of 2%, and most of the 5-year deposits have dropped to 2.05%. However, after the adjustment of Zheshang Bank and Bohai Bank, the highest fixed deposit listed interest rate remained at 2.3%.

In addition, the Postal Savings Bank, which has not adjusted the interest rate synchronously in the early stage, has also updated the latest interest rate level on its official website, and after the same reduction, except for the half-year (1.36%) and one-year fixed deposit interest rates (1.48%), the interest rates of other deposit varieties are consistent with the major banks.

What is the impact of the overall downgrade?

From the perspective of joint-stock banks, China Merchants Bank has made synchronous adjustments with large banks on December 22, and the bank's 1-year, 2-year, 3-year, and 5-year fixed deposit interest rates have decreased from 1.55%, 1.85%, 2.2%, and 2.25% to 1.45%, 1.65%, 1.95%, and 2%, respectively, with a decrease of 10BP, 20BP, 25BP, and 25BP respectively.

China CITIC Bank also made the same adjustment, the bank's 1-year, 2-year, 3-year, and 5-year fixed deposit interest rates were reduced from 1.75%, 1.90%, 2.25%, and 2.30% to 1.65%, 1.70%, 2.0%, and 2.05%, respectively, with a decrease of 10BP, 20BP, 25BP, and 25BP, respectively.

Other joint-stock banks have also made similar adjustments, and the implementation interest rate has been lowered accordingly. Taking Minsheng Bank as an example, the highest interest rate of the bank's characteristic time deposit product "Safe Deposit" can reach 2.9% for 5 years and 2.85% for 3 years, but it has now been reduced to 2.65% and 2.6% respectively, with a decrease of 25BP.

From the perspective of large state-owned banks, compared with the four rounds of adjustment since the establishment of the market-oriented adjustment mechanism for deposit interest rates last year, one difference in the adjustment of such deposit interest rates is that the interest rates of fixed deposit products have also been lowered for the first time within one year. From the perspective of joint-stock banks, the adjustment also involves related short-term deposit varieties, as well as small deposits and withdrawals, lump sum deposits and withdrawals.

Taking Shanghai Pudong Development Bank as an example, the bank's 3-month and 6-month fixed deposit interest rates were also reduced by 10BP, to 1.20% and 1.45% respectively. Fractional deposits, lump sum deposits, and call deposits were reduced by 10BP, 10BP, and 20BP respectively.

This is also the third time this year that a national commercial bank has lowered deposit interest rates in a centralized manner, and the last time was in September. According to the analysis of comprehensive institutions, after a lapse of three months, the deposit interest rate has been adjusted again, mainly due to the continued trend of deposit regularization, the increase in credit supply by banks, and the continuous narrowing of net interest margin.

Lin Yingqi, a banking analyst at CICC, pointed out that due to the rare reduction of short-term deposit interest rates, this round may be the largest round of deposit rate cuts since 2016, and it may also mark the beginning of a comprehensive downward trend in the subsequent deposit interest rate curve.

In retrospect, after the three adjustments in June, September and December during the year, the one-year, two-year, three-year and five-year fixed deposit interest rates of major state-owned banks were reduced by 20BP, 50BP, 65BP and 65BP respectively, and the latest listed interest rates have been lower than the yield of treasury bonds. Judging from the rhythm of previous deposit interest rate adjustments, it is mainly a demonstration for large banks, followed by joint-stock banks and small and medium-sized banks, but there may be differences in the time rhythm and adjustment range.

Ni Jun, a banking analyst at GF Securities, pointed out that the reduction of the deposit listing interest rate is expected to further alleviate the trend of deposit regularization, guide residents to flow excess savings to the investment side, and also reduce the phenomenon of "capital idling" caused by high deposit interest rates. However, given the decline in risk appetite, some experts believe that the marginal effect of the deposit rate cut is weakening.

According to CICC's research report, it is expected that this round of adjustment will drive the weighted average interest rate of time deposits down by about 15BP, which is higher than that in September 2023 (about 9BP), June 2023 (about 3BP), and 2022 (10~12BP). Based on the calculation of about 150 trillion yuan of fixed deposits, the interest reduction of 15BP will save 225 billion yuan of bank interest expenses (annualized) every year, which is comparable to the impact of the reduction of interest rates on existing mortgage loans.

Lin Yingqi predicts that the positive contribution of fixed deposits to bank interest margins will be about 6BP, which can boost revenue by about 3% and net profit by 6% (annualized), which will be gradually released in the next 1~2 years in deposit repricing. Among them, the impact on interest margin in 2024 may be 3BP, with revenue affecting 1.5% and net profit affecting 3%. At the same time, he pointed out that if the LPR (loan prime rate) with a maturity of 1 year and more than 5 years is reduced by 10BP at the beginning of next year, this deposit rate adjustment can fully hedge the impact, and if the future deposit rate falls by a similar range as this time, the impact of the LPR cut on the interest rate spread will turn from negative to close neutral.

The marginal effect is weakened

The deposit rate will fall again and the scope and magnitude will be larger, whether it will drive the LPR down has attracted much attention from the market. Ni Jun believes that in the context of the slow recovery of the real estate sales market, this round of deposit interest rate adjustment may also reserve room for the reduction of LPR of more than 5 years early next year.

At present, the LPR of more than 5 years has been maintained at 4.2% since June, and since then, the MLF (medium-term lending facility) interest rate cut in August, the central bank cut the reserve requirement ratio in September, and the state-owned banks collectively lowered the deposit listing rate in September, and the LPR continued to stand still in December. Ming Ming, chief economist of CITIC Securities, pointed out that in the context of the pressure on the asset side brought by the compression of interest rate spreads and the reduction of existing mortgage interest rates, the RRR or interest rate cut alone may not be enough to drive banks to take the initiative to reduce LPR quotations. However, considering the impact of the accumulated events since June, coupled with the adjustment of the deposit rate, the possibility of a downward trend in long-end LPR quotations has increased, but the adjustment may be limited.

Wang Yifeng, chief financial analyst of Everbright Securities, pointed out that although the current round of deposit interest rate cuts will not necessarily lead to MLF-LPR adjustment immediately, for the real economy, the high-frequency data in the first quarter may form a support for the policy rate cut, and the MLF-LPR reduction in the first quarter of next year is optional, and the probability of RRR reduction before April next year (inclusive) is still large.

Some institutions told reporters that the adjustment of the deposit interest rate rarely occurred at the end of the year, the impact of the "good start" stage, coupled with the last period of the year (December) LPR has not been lowered, from the perspective of the stock of housing loans anchored LPR, will ease the pressure on interest rate spreads for banks from both ends of assets and liabilities.

In the view of industry insiders, the decline in deposit interest rates is conducive to the increase in the impetus for bank credit to increase "price reduction increment". However, Dong Ximiao, chief researcher of Zhaolian Financial, told reporters that there is still room for deposit interest rates to continue to decline next year, and considering the current insufficient effective financing needs of enterprises and residents, weak confidence and expectations, and low risk appetite, to fundamentally boost the willingness and ability of enterprises and residents to invest and consume, monetary and fiscal policies are also needed to be more active, especially the central bank should continue to reduce the deposit reserve ratio and policy interest rate, and provide banks with more medium and long-term low-cost funds.