Small and medium-sized banks have made up for the reduction of interest rates! Deposits have been regularized and capped

A new round of deposit interest rate "interest rate cuts" is coming, and local small and medium-sized banks collectively "make up for the reduction". On April 7, a reporter from Beijing Business Daily combed and found that recently, rural commercial banks and village banks in Shaanxi, Shanxi and Henan announced that they would lower their deposit interest rates, covering short-term, medium- and long-term time deposits, and the interest rate reduction range was about 15-80 basis points. In the 2023 annual reports of listed banks, the data of many banks have reflected the trend of deposit termination, and a number of senior executives also expressed control over the scale of high-cost deposits at the results conference. Under the battle to defend interest rate spreads, a new round of deposit rate cuts is still a high probability event.

Banks in many places have lowered deposit rates

From the end of 2023 to the first half of 2024, the banking industry is experiencing a new round of deposit rate cuts, and this round of "interest rate cuts" involves large state-owned banks, joint-stock banks, and many small and medium-sized banks, showing the characteristics of "echelon" reductions, that is, large and medium-sized banks take the lead in reducing them, and then other banks follow suit. On April 7, a reporter from Beijing Business Daily combed through and found that recently, rural commercial banks and village banks in Shaanxi, Shanxi, and Henan announced that they would lower deposit interest rates.

On April 7, Pingyao Jinrong Village Bank issued an announcement stating that in order to implement the self-discipline mechanism of the People's Bank of China's market interest rate pricing, combined with the deposit interest rate of Pingyao county financial institutions and the actual situation of the bank, the deposit interest rate has been adjusted since April 1, and after the adjustment, the annual interest rate of the bank's two-year, three-year and five-year time deposits is 2.45%, 2.75% and 2.8% respectively. Compared with the announcement issued by the bank in September last year, it was lowered by 15 basis points, 20 basis points and 20 basis points respectively. However, it is worth noting that the bank's one-year time deposit rate has been raised, from 2.10% before adjustment to 2.15% after adjustment. In this regard, the bank's relevant person said, "The performance of interest rates in each time period is different."

Pingcheng Kyoto Village Bank, located in Shanxi, also said that in order to strengthen the management of deposit interest rates, it has adjusted some fixed deposit interest rates since April 1. A reporter from Beijing Business Daily noted that the bank's adjusted product categories are mainly two-year, three-year, and five-year time deposits, with adjusted interest rates of 2.55%, 3%, and 3.1% respectively, and interest rates before adjustment of 2.75%, 3.4%, and 3.9% respectively, which were reduced by 20 basis points, 40 basis points, and 80 basis points respectively.

There are also a number of banks in Henan that have adjusted interest rates. According to the Notice on Adjusting the Execution Interest Rate of Time Deposits issued by Zhumadian Rural Commercial Bank, the execution interest rates of the bank's three-month, six-month, one-year, two-year and three-year time deposits have all been lowered, with the reduction bases of 20 basis points, 15 basis points, 30 basis points, 35 basis points and 30 basis points respectively, and the adjusted interest rates are 1.40%, 1.65%, 1.8%, 2% and 2.35% respectively, and the five-year time deposit execution interest rate remains unchanged.

Specifically, the adjusted interest rates on one-year, two-year and three-year time deposits are 1.8%, 2% and 2.35% respectively, which are 30 basis points, 35 basis points and 30 basis points lower than before the adjustment.

Before the adjustment of Hebi Rural Commercial Bank, the higher the deposit amount, the higher the corresponding interest rate, taking the three-year time deposit as an example, before the adjustment, the deposited funds are divided into less than 10,000 yuan, 10,000-100,000 yuan, and more than 10 (inclusive) yuan, and the corresponding deposit interest rates are 2.35%, 2.65%, and 2.7% respectively. Tanghe County Rural Credit Cooperative, Xinmi Rural Commercial Bank and other banks have also adjusted deposit interest rates, with a reduction of 10-40 basis points.

A reporter from Beijing Business Daily noticed that although there are still individual banks that have launched "deposit benefits" and raised interest rates, they are still individual behaviors. A local banker introduced, "at present, the deposit interest rate increase activity of our bank has not ended, it is a 'good start' in the previous quarter, depositors want to get a high interest rate also need a certain minimum deposit threshold, the deposit amount is 50,000 yuan, and the three-year time deposit interest rate can reach 2.6%."

The trend of regularization of deposits has deepened

Despite the repeated declines in deposit rates, they remain attractive to conservative investors against the backdrop of uncertain returns in financial markets, with many investors shy away from risky assets in favour of relatively safe time deposits.

With the successive disclosure of the 2023 annual reports of various listed banks, an obvious industry phenomenon has been revealed - the regularization of deposits. Taking the four major state-owned banks as an example, ICBC's fixed deposits increased significantly in 2023, increasing by about 4.18 trillion yuan, a growth rate of 27.6%, while demand deposits decreased by 617.111 billion yuan, a decrease of 4.4%.

The proportion of demand deposits at ABC also declined, falling by 5.6 percentage points from the level at the end of the previous year to 42.9% in 2023. The proportion of time deposits in both corporate and retail deposits increased from the previous year.

CCB directly mentioned in its annual report that customers have a strong willingness to save and a continuous increase in the propensity for fixed deposits. As of the end of 2023, the bank's domestic demand deposits were 12.02 trillion yuan, a decrease of 26.458 billion yuan or 0.22% from the previous year, and domestic time deposits were 14.70 trillion yuan, an increase of 2.58 trillion yuan or 21.25% from the previous year.

In the camp of joint-stock banks, this phenomenon is equally noticeable. For example, China Merchants Bank's annual report said that due to the decline in customer risk appetite and the weakening of corporate capital vitality, the investment demand for time deposit products has risen, resulting in a decline in the proportion of demand deposits, and the average daily balance of retail customers' demand deposits accounted for 56.74% of the average daily balance of retail customers' deposits, a year-on-year decrease of 7.69 percentage points. CEB's retail customer fixed deposits also increased by 2.48 percentage points from 20.60% to 23.08%.

It is true that fixed deposits are more stable than demand deposits, which can provide banks with a stable source of medium and long-term funds, which is conducive to bank asset liability management and liquidity risk management. However, it should be noted that with the increase in the proportion of fixed deposits, the interest expenses that banks need to pay will also increase accordingly, which will put pressure on the net interest margin of banks and directly affect the profitability of banks.

In order to reduce costs, a number of banks have taken action. At the 2023 annual results conference held by CCB, Sheng Liurong, chief financial officer of CCB, said, "In 2023, CCB will increase structural adjustment on the liability side, and guide branches to grasp more settlement funds and control deposits with higher interest payment rates of more than three years through assessment adjustment and internal transfer adjustment. In addition, low-cost demand deposits have been driven by managed assets, and the growth of deposit interest rates has been controlled through these measures."

"The rigidity of deposit costs is still relatively significant. Zhang Yi, Deputy Governor of Bank of China, said at the 2023 annual results conference, "Although the deposit interest rate has dropped three times in 2023, the trend of fixed-term and long-term deposits is still relatively obvious, and there is a certain proportion of increase in this aspect, and market competition has also intensified the momentum of downward costs." Zhang Yi revealed that in 2024, Bank of China will increase its pressure on high-cost deposits, including agreement deposits, structured deposits and large-amount certificates of deposit with a maturity of more than three years.

Some industry observers have pointed out that there are two main reasons for the increasingly serious phenomenon of fixed-term deposits: First, investors will be more inclined to choose low-risk fixed deposits in order to seek financial security and reduce investment risks; second, in the current economic environment, market interest rates are declining, and the interest rates of fixed deposits are higher than those of investment products such as bonds, making fixed deposits a more popular investment choice.

Xue Hongyan, vice president of Xingtu Financial Research Institute, pointed out that in recent years, in order to better support the real economy, the LPR interest rate has continued to fall, and the weighted average interest rate of general loans of financial institutions has continued to decline. During this period, although the listed interest rate of deposits was also reduced, the proportion of fixed deposits gradually increased in the context of fixed-term deposits, and the decline in the cost of bank liabilities was lower than the decline in loan interest rates, which continued to squeeze the level of net interest margin, resulting in a decline in interest margins.

Interest rate cuts remain a high probability event

By lowering deposit rates, especially time deposit rates, banks can help reduce the cost of liabilities, thereby easing pressure on interest margins. Combined with the impact of LPR (loan prime rate) repricing and deposit regularization, the market believes that the deposit interest rate of the banking industry may decline in 2024.

Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, said that generally speaking, the reduction of bank deposit interest rates depends more on the supply and demand situation of the deposit market, the assets and liabilities, net interest margin and operation of each type and bank. The recent reduction of deposit interest rates by small and medium-sized banks is a follow-up reduction, and the domestic use of large, medium and small banks to reduce deposit interest rates in a "cascade" manner allows the market to fully digest the impact of the deposit interest rate reduction, which is conducive to maintaining the normal competition order of the deposit market.

"At present, there is still a certain imbalance in the deposit market, the cost of debt of some banks has risen, and the pressure on net interest margin is still large. Zhou Maohua said.

Zhou Yiqin, a senior financial policy expert, pointed out that after the last round of deposit interest rate cuts by large state-owned banks, based on the experience of past rounds of adjustments, in order to ensure that the domestic deposit market maintains a fair and just competition order, small and medium-sized banks will definitely gradually follow up with the interest rate cuts. On the one hand, the reduction of deposit interest rates has effectively reduced the cost of liabilities of commercial banks and alleviated the pressure on the net interest margin of commercial banks to a certain extent, and on the other hand, it has also continued to maintain a steady and declining trend of comprehensive social financing costs and continued to "transfuse" the real economy. Judging from the current situation, there is still a possibility that bank deposit interest rates will continue to be lowered in the future. It is expected that a new round of interest rate adjustment may begin in the second quarter.

Zhou Yiqin stressed that previously, under the influence of factors such as stock market adjustment, weak property market, fluctuation of wealth management net worth, and poor performance of public funds, residents' risk appetite continued to decline, their willingness to save increased, and funds re-flowed to the deposit market, and showed an obvious trend of deposit regularization. At present, although some small and medium-sized banks have raised deposit interest rates to attract depositors, the main reason is that these small banks have limited ability to attract deposits, and they have taken advantage of the time window for large banks to reduce interest rates to increase their efforts to attract deposits in stages, and strive to achieve a "good start" in 2024. These actions are also short-term measures, and small and medium-sized banks will definitely follow up with gradual interest rate cuts.

At the bank level, as Xue Hongyan said, considering that the real economy has not yet stabilized and the interest rate on the loan side lacks room for improvement, banks need to continue to reduce the interest rate on the deposit side in order to maintain the stability of interest margins, and at the same time optimize the deposit structure and increase the proportion of demand deposits.

Beijing Business Daily reporter Song Yitong