The deposit interest rates of small and medium-sized banks are intensively "making up for the cut", and there may be room for interest rate cuts in the future

The tide of intensive "catch-up" of deposit interest rates of small and medium-sized banks is coming.

According to the reporter's incomplete statistics, as of April 8, more than 10 urban rural commercial banks and village banks in Guangdong and Henan have intensively announced the reduction of deposit interest rates, and the focus of the reduction is mostly concentrated in medium and long-term deposits, and the reduction range is about 25BP~80BP.

However, unlike the pace of interest rate cuts on banks' intensive deposits, the trend of regularization of bank deposits continues in the 2023 annual reports of banks released recently. Some people in the industry believe that although the current deposit interest rate has fallen to a low level, investors' willingness to save in the medium and long term is still relatively strong, and the pressure on the debt side has increased instead of decreasing. There is still some room for deposit rate cuts in the future.

Small and medium-sized banks intensively make up for the cut

On April 1, Chaozhou Rural Commercial Bank announced that it would adjust the listed interest rate of RMB deposits from April 1, 2024. Compared with the bank's updated listing rate table last year, the one-year fixed deposit listed interest rate decreased by 55BP to 1.55%, the three-year fixed deposit listed interest rate decreased by 30BP to 2.05%, and the five-year fixed deposit listed interest rate decreased by 25BP to 2.1%.

Chaozhou Rural Commercial Bank is not alone. According to the reporter's incomplete combing, as of April 8, more than 10 urban rural commercial banks and village banks in Guangdong and Henan have announced intensive changes in deposit interest rates in April, with a reduction of 25BP~80BP.

The reporter noted that the reduction was mainly concentrated in medium and long-term deposits, and the decline in three-year fixed deposits was higher than that of five-year deposits. The most typical is Henan Suiping Rural Commercial Bank. The bank's three-year and five-year fixed deposit interest rates were 2.65% and 2.4% before the cut, and there was a phased term inversion. After this adjustment, the upside-down situation disappeared. The three-year fixed deposit rate was lowered by 30bp to 2.35%, and the five-year fixed deposit interest rate remained at 2.4%.

Similarly, Zhumadian Rural Commercial Bank, Taikang Rural Commercial Bank, and Panjin Branch of Fuxin Bank have reduced the 3-year fixed deposit interest rate and not adjusted the 5-year fixed deposit interest rate. After the adjustment, the three-year fixed deposit interest rate of the above-mentioned small and medium-sized banks is basically below 3%.

Most in the industry believe that the current round of interest rate cuts for small and medium-sized bank deposits is a "make-up reduction" after the previous interest rate cuts by large banks. The Tan Yiming team of Minsheng Securities believes that the recent reduction of deposit interest rates by a number of small and medium-sized banks is a follow-up to the "interest rate cut" of banks at the end of last year.

In December 2023, the six major state-owned banks, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of China, Bank of Communications, and Postal Savings Bank, officially announced that they would reduce the interest rates on deposits, and the three-year fixed deposit interest rates of major state-owned banks broke through the 2% integer mark and dropped to 1.95%.

Small and medium-sized banks chose to follow up intensively at this juncture in early April, which may be related to the self-discipline mechanism of market interest rate pricing. According to the Implementation Measures for Qualified Prudential Assessment (2023 Revision) issued by the Self-Discipline Mechanism for Market Interest Rate Pricing in April last year, if the quarterly average of the interest rate of fixed deposits and large certificates of deposit of each key maturity of a bank is lower than the agreed adjustment range compared with the monthly average of the second quarter of the previous year, points will be deducted on the basis of the "pricing behavior" score (total score of 100 points).

A number of banks have also cited compliance with the requirements of the self-discipline mechanism for market interest rate pricing as the reason for the adjustment of the listed interest rate in the announcement. For example, Yinjiang Changzheng Rural Bank and Pingyao Jinrong Rural Bank stated in the announcement that the listed interest rate will be adjusted according to the relevant requirements of the self-discipline mechanism for interest rate pricing and the current interest rate market pricing situation.

The trend of regularization of deposits continues

In the past year, bank deposit interest rates have undergone several rounds of reductions. In June, September and December 2023 alone, major state-owned banks updated their RMB deposit interest rates three times, lowering the interest rates on fixed deposits of some maturities, and small and medium-sized banks also followed the rhythm of "making up for the reduction" within a certain time limit.

It is worth noting that while banks continue to lower fixed deposit rates, customers' enthusiasm for medium- and long-term savings has not diminished. Judging from the recent annual reports disclosed by major banks, the regularization of bank deposits is still heating up, and the pressure on the liability side is increasing instead of decreasing.

CCB pointed out in its annual report that customers have a strong willingness to save and a strong tendency to keep time 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, domestic time deposits were 14.70 trillion yuan, an increase of 2.58 trillion yuan or 21.25% from the previous year, and ICBC's time deposits increased by about 4.18 trillion yuan in 2023, with a growth rate of 27.6%, while demand deposits decreased by 617.111 billion yuan, or 4.4%.

A similar situation has occurred in joint-stock banks. According to the annual report, the scale of retail demand deposits of China Merchants Bank in 2023 decreased by 7.75% year-on-year, while the scale of retail time deposits increased by 48.58%.

Another data also confirms to a certain extent the universality of deposit regularization. Judging from the 2023 RMB Credit Balance Sheet of Financial Institutions disclosed by the People's Bank of China, the balance and proportion of fixed deposits in the household sector and non-financial enterprises are on the rise. The share of time deposits in the household sector increased from 68.1% to 71.5%, while that of non-financial corporations increased from 65.9% to 68.4%.

The trend of fixed-term deposits has further increased the cost of banks' liabilities. According to the data of Zheshang Securities Research Report, the interest payment cost rate and deposit cost rate of listed banks in 2023 will increase by 1.3BP and 0.3BP respectively compared with the first half of 2023, and the debt cost ratio and deposit cost rate are still rising.

Is there room for interest rate cuts in the future?

In fact, a number of banks have also mentioned measures to ease the regularization of deposits.

"Although the deposit interest rate will be reduced three times in 2023, the trend of fixed-term and long-term deposits is still relatively obvious. Zhang Yi, deputy governor of Bank of China, said at the 2023 annual results conference that in 2024, Bank of China will increase the pressure on high-cost deposits, including agreement deposits, structured deposits and large-amount certificates of deposit with a maturity of more than three years.

Chen Xinjian, president of the Industrial Bank, recently said that since last year, it has stepped up efforts to replace high-cost agreement deposits and social security deposits with low-cost deposits.

Some people in the industry believe that judging from various factors such as the trend of fixed deposits and net interest margins, there may be room for further deposit interest rate cuts in the future.

"There is a need for further reductions in deposit rates. Xiao Yu, chief fixed income analyst of Zhongtai Securities, believes. First, considering that the overall net interest margin of half of the listed banks and commercial banks is already below 1.8 percent, some banks must find ways to increase the loan interest rate or reduce the deposit interest rate to expand the net interest margin, and the latter is obviously more likely at present; second, some small and medium-sized banks have launched a "price war" in order to attract savings, resulting in high deposit interest rates, and the net interest margin of rural commercial banks is at a relatively high level, and there is still room for decline.

"It is expected that the deposit rate will be cut in April. Liang Fengjie, chief banking analyst of Zheshang Securities, believes that the main consideration of deposit pricing refers to 10-year treasury bonds and 1-year LPR, of which the yield of 10-year treasury bonds in the first quarter of 2024 will drop by 25BP compared with the fourth quarter of 2023;

(This article is from Yicai)