The deposit interest rates of many small and medium-sized banks have been lowered to the next level, and lower interest rates are still the general trend

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Following the large state-owned banks and joint-stock banks have lowered their deposit interest rates, small and medium-sized banks are also "making up for the reductions" one after another. At the beginning of the new year, a number of small and medium-sized banks issued announcements on adjusting deposit interest rates, mainly focusing on urban commercial banks, rural commercial banks and village and township banks.

In line with the speculation in the industry, referring to the previous experience of reducing the deposit rate, large, medium and small banks will follow up the way to reduce the deposit interest rate in stages. However, compared with the previous follow-up speed, the pace of reduction of small and medium-sized banks has accelerated.

According to the analysis of interviewed insiders, the current interest rate reduction will further ease the pressure on banks' net interest margins and optimize the cost structure of bank liabilities; at the same time, after the current round of deposit interest rate reduction, deposit funds may continue to transfer to the wealth management market, driving the total scale of the wealth management market upward. In addition, against the backdrop of continued pressure on the net interest margins of financial concession entities and banks, the downward trend of deposit rates is still the general trend.

A number of small and medium-sized banks have followed suit in cutting deposit rates

In the "good start" stage, a number of small and medium-sized banks followed in the footsteps of large banks and lowered their deposit interest rates.

For example, on January 3, Jieyang Rural Commercial Bank issued the "Announcement on Adjusting the Listed Interest Rate of RMB Deposits", which lowered the corresponding deposit interest rate. Compared with the previous year, the two-year interest rate for lump sum deposits and lump sum withdrawals has been reduced by 15 basis points to 1.70%, the three-year interest rate has been reduced by 15 basis points to 2.05%, and the five-year interest rate has been reduced by 5 basis points to 2.10%.

Xinjiang Yili Rural Commercial Bank recently announced that the one-year, two-year, three-year, and five-year deposit execution rates were adjusted to 1.55%, 1.75%, 2.05%, and 2.1% respectively, which were 15, 25, 45, and 30 basis points lower than before.

After the adjustment of Tonglu Hengfeng Village Bank, the interest rates of one-year, two-year, three-year and five-year lump sum deposits and withdrawals were 1.95%, 2.25%, 2.8% and 2.8% respectively, which were reduced by 10, 20, 25 and 25 basis points respectively compared with the previous ones.

In fact, from September 2022 to December 2023, major commercial banks have taken the initiative to reduce the listed interest rates of fixed deposits four times, and led small and medium-sized banks to follow suit.

The fourth round of reductions began on December 22, 2023, when the five major banks of industry, agriculture, China, construction and communications, as well as China Merchants Bank, announced the reduction of the listed interest rate on time deposits and the optimal interest rate for large-denomination certificates of deposit. For fixed deposits, the tenors of one year or less, two years, three years and five years were reduced by 10, 20, 25 and 25 basis points respectively, while the maximum interest rate for large certificates of deposit of one year and below was reduced by 10 basis points, and the two-year and three-year tenors were reduced by 25 basis points and 30 basis points respectively.

Subsequently, the Postal Savings Bank, joint-stock banks, Bank of Suzhou, Bank of Shanghai, Bank of Jiangsu and other city commercial banks have updated the deposit listed interest rates. After the adjustment, the 2-year fixed deposit listed interest rate of many city commercial banks has dropped to below 2%, the 3-year fixed deposit listed interest rate of many joint-stock banks has dropped to the edge of 2%, and the 5-year fixed deposit listed interest rate has dropped to 2.05%.

It is worth noting that, compared with the previous follow-up speed, the pace of reduction of small and medium-sized banks has accelerated.

According to the analysis of the fixed income group of Legal Inquiry Finance, the current round of deposit interest rate reduction exceeded market expectations. Previously, there would be a buffer period of 2-3 months starting from the large state-owned banks to the reduction of deposit interest rates of joint-stock banks, urban commercial banks, and rural commercial banks. Within 10 working days, banks at different levels, such as joint-stock banks, urban commercial banks, rural commercial banks, and village and township banks, announced that they would lower their deposit interest rates, which was unprecedented in efficiency.

The lower interest rate will effectively ease the pressure on net interest margins

At present, interest rate spreads in the banking sector are still under pressure to narrow. According to industry analysts, the interest rate cut will further ease the pressure on banks' net interest margins and optimize the cost structure of bank liabilities.

"The interest rate reduction of different maturities of the deposit interest rate is asymmetrical, and the reduction of high-term products is relatively high, indicating that the interest rate reduction measures have obvious intentions to improve the current long-term trend of deposits, and are expected to further optimize the cost structure of bank liabilities, so as to better reduce the overall cost of liabilities. The first team of Minsheng Bank pointed out.

It is expected that this round of interest rate cuts will reduce the cost of interest-bearing liabilities in the banking industry by about 5.1bp, and the interest margin will improve by about 4.8bp, and the interest rate spread may improve by 7.6bp due to the impact of the interest rate cut in September.

The team said that on the whole, due to the relatively high proportion of personal fixed deposits in state-owned banks and rural commercial banks, the reduction of listed interest rates has a more obvious impact on the cost of liabilities, and the net interest margin has improved greatly, while the fixed deposits of joint-stock banks and urban commercial banks are mainly corporate deposits, and the actual reduction in debt costs may be relatively limited, and the improvement in net interest margin is relatively small.

Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, pointed out to the Blue Whale financial reporter that the reduction of deposit interest rates is good for market sentiment. On the one hand, the reduction of deposit interest rates will enhance the operational soundness of banks and expand the space for banks to further rationally benefit the real economy. On the other hand, the decline in deposit rates and the recovery of market sentiment may be expected to drive the demand for wealth management products and boost the demand for allocation to a certain extent.

The first economic team of Minsheng Bank also pointed out that the reduction of fixed deposit interest rates, coupled with the expectations of residents and enterprises, as well as the continuous improvement of consumption scenarios and economic environment, is conducive to reducing the willingness of economic entities to save and using more funds for consumption and investment activities, which can not only alleviate the trend of fixed-term and long-term deposits, reduce the pressure on the liability side of banks, but also enhance economic vitality, maintain the steady development of real estate and wealth management markets, and promote a virtuous cycle of the economy.

The downward trend in deposit rates is still the general trend

Will deposit rates continue to fall in the future?

The first economic team of Minsheng Bank believes that in the context of the continued pressure on the net interest margin of financial concession entities and banks, the downward trend of deposit interest rates is still the general trend, and the continuous decline in the interest rates of new and existing loans has increased the necessity of cost control on the liability side of banks.

"It is expected that the self-discipline management of deposit pricing will be further improved, and there is still room for the deposit interest rate to be lowered, in addition to the reduction of the deposit listed interest rate, it may also take measures to limit the upper limit of the interest rate of relatively high-interest products such as structured deposits and agreement deposits, reduce the upper limit of the long-end MPA point increase in the deposit interest rate, and improve the market-oriented pricing mechanism of the deposit interest rate. Minsheng Bank's first economic team said.

Zhou Maohua pointed out that judging from the current market interest rate, the income of wealth management products and the interest rate of 10-year treasury bonds, there is still some room for adjustment in bank deposit interest rates. The subsequent reduction of bank deposit interest rates depends more on the supply and demand conditions of the deposit market, the assets and liabilities of each type and each bank, the pressure on net interest margins and the operation of each bank.

"Considering that it will take some time for the pressure on banks' net interest margins to ease, it is expected that the follow-up LPR interest rate will need the support of the central bank number + price + reform, and guide the entire market interest rate center to move further downward. Zhou Maohua added.