Following up on the deposit interest rate cut of large banks at the end of last year, many small and medium-sized banks lowered their deposit rates by 10-60BP

Following the large state-owned banks successively lowered the listed interest rates of fixed deposits at the end of December 2023, small and medium-sized banks once again set off a wave of interest rate cuts.

Recently, Bank of Guilin, Bank of Liuzhou, Yushu Rural Commercial Bank, Huadian Rural Commercial Bank and other banks have intensively issued deposit interest rate adjustment announcements, involving demand deposits, time deposits, large-amount certificates of deposit and other deposit products, with a reduction range of 10 to 60 basis points (BP).

Industry insiders generally believe that there is still a possibility of further reductions in deposit rates. At present, it is necessary to ensure "financial stability" and "internal and external balance", and the reduction of deposit interest rates can reduce the financing cost of the real economy, and coordinate fiscal efforts to help the financial market recover.

Banks have cut interest rates one after another

As early as the end of December 2023, major state-owned banks successively lowered the listed interest rates on time deposits. Now, it has ushered in a new wave of interest rate cuts for small and medium-sized banks.

After the Spring Festival, banks in Jilin, Guangxi and other places, including Bank of Guilin, Bank of Liuzhou, Yushu Rural Commercial Bank, Huadian Rural Commercial Bank, etc., have recently issued intensive announcements on the adjustment of deposit interest rates, and the varieties of deposit interest rates have been lowered, involving demand deposits, time deposits, large-amount certificates of deposit, etc., with a reduction range of 10 to 60 basis points.

On February 21, Yushu Rural Commercial Bank said that according to the market-oriented demand of interest rates, the bank decided to adjust the upper limit of the interest rates on demand deposits, three-year and five-year lump sum deposits from 0:00 on February 22, 2024, and the interest rate on demand deposits was reduced to 0.2%, and the interest rates on three-year and five-year deposits were reduced to 2.7%.

Jilin Huadian Rural Commercial Bank also issued an announcement on February 21 that according to the market-oriented demand of interest rates, it was decided to adjust the upper limit of the interest rates on demand deposits, three-year and five-year lump sum deposits from 0:00 on February 22, 2024, that is, the interest rate on demand deposits was reduced from the current 0.25% to 0.2%, a reduction of 5 basis points, and the three-year and five-year interest rates were reduced from the current 2.8% to 2.7%, both of which were reduced by 10 basis points.

Bank of Liuzhou said in the announcement that the bank adjusted the interest rate of some deposit products on February 21, including the one-year fixed deposit interest rate from 2.25% to 2.15%, the three-year fixed deposit interest rate from 3.4% to 3.2%, and the five-year fixed deposit interest rate from 3.8% to 3.2%.

At the same time, on February 19, Bank of Liuzhou announced that the bank's 3-month and 6-month time deposit interest rates were reduced by 10 basis points compared with the previous ones, and the 3-year and 5-year time deposits were reduced by 20 basis points and 60 basis points respectively. In addition, the interest rate on personal large-amount certificates of deposit has also been lowered. Among them, the three-year large-denomination certificates of deposit were lowered by 20 basis points to 3.25%, and the five-year large-denomination certificates of deposit were lowered by 70 basis points to 3.25%.

On February 20, Bank of Guilin announced that it would adjust the implementation interest rate of five-year deposit products to 3.2%.

The Bank of Guilin has also adjusted the five-year deposit interest rate for unit lump sum deposits and withdrawals several times, and the interest rate of this deposit product has been reduced by 70 basis points. In June last year, the bank announced that it would adjust the deposit interest rate to 3.9%, and in January this year, the bank issued another document saying that it would adjust the deposit rate to 3.35%.

As for the reasons why small and medium-sized banks have successively lowered deposit interest rates, Jiang Han, a senior researcher at Pangu Think Tank, said in an interview with a reporter from the China Times that it is mainly to adapt to the current economic situation and the central bank's monetary policy orientation. As global economic growth slows and downward pressure on the domestic economy increases, central banks are likely to take measures to lower market interest rates to stimulate economic growth. Lowering deposit rates can reduce the cost of funds for banks, while encouraging businesses and individuals to invest and spend more instead of depositing money in banks. In addition, the decline in deposit rates has also helped to stabilize the exchange rate and curb capital outflows.

Rate cuts are on the way

Previously, the central bank pointed out in the monetary policy implementation report for the fourth quarter of 2023 that it will continue to deepen the market-oriented reform of interest rates, further improve the formation mechanism of loan market prime interest rates, give full play to the role of the market-oriented adjustment mechanism of deposit interest rates, and promote the steady and moderate decline of comprehensive social financing costs.

On February 20, the People's Bank of China authorized the National Interbank Lending Center to announce that the loan market quotation rate (LPR) is 3.45% for 1-year LPR and 3.95% for LPR over 5 years. The 1-year LPR quotation remains unchanged, but the 5-year LPR price is reduced by 25BP.

It is reported that the research report of Yongxing Securities believes that after the reduction of the deposit interest rate of commercial banks, on the one hand, it will help to alleviate the net interest margin of commercial banks and reduce the cost of the liability side of commercial banks; on the other hand, the reduction of deposit interest rates means that the central level of interest rates in the mainland will further decline, which will help promote the downward trend of risk-free interest rates, expand the space for commercial banks to make profits to the real economy, and achieve high-quality financial development.

For small and medium-sized banks, Pan Helin, co-director and researcher of the Digital Economy and Financial Innovation Research Center of Zhejiang University International Business School, said that the main goal of banks is to earn interest rate differentials, and for most Chinese, the first demand for deposits is safety, small and medium-sized banks are attractive in deposit interest rates, and large banks are attractive in security. Now, when interest rate spreads are narrowed, small and medium-sized banks will become less attractive if they lower their deposit rates, and if they raise deposit rates, they will lose their spreads altogether. On the other hand, it is also difficult for small and medium-sized banks to obtain "cheap funds" between the banking markets. Small and medium-sized banks need to wholesale funds from large banks, which is bound to increase the middleman spread.

The Great Wall Securities research report believes that although the listed interest rate of bank deposits has undergone four rounds of reduction since 2022, the overall deposit cost rate of banks has not decreased due to the regularization of deposits.

An industry insider also analyzed that the deposit interest rate is still likely to be further reduced, at present, it is necessary to ensure "financial stability" and "internal and external balance", the reduction of the deposit interest rate can reduce the financing cost of the real economy, and coordinate the financial force to help the financial market recover, and the interest rate cut is still on the way.

Jiang Han believes that this depends on the future macroeconomic environment and changes in monetary policy. If economic growth continues to slow or there is a risk of deflation, the central bank may further lower the benchmark interest rate, and the bank may cut the deposit rate again to reflect this change.

"Deposit interest rates cannot be lowered indefinitely," he further analyzed, "too low deposit interest rates may affect the income of depositors, and then affect residents' willingness to save and spending power." Therefore, banks need to weigh many factors when adjusting deposit interest rates and make decisions that are in line with the current economic situation and the bank's own development needs. ”

Editor-in-charge: Meng Junlian Editor-in-chief: Zhang Zhiwei