Recently, a number of small and medium-sized banks have actively issued new certificates of deposit to absorb deposits. Titanium media APP found that many small and medium-sized banks in Fujian, Jiangxi, Zhejiang, Shanxi and other countries have recently launched three-year and five-year large-value certificate of deposit products with a minimum deposit of 200,000 yuan and an interest rate of about 3%.
On the contrary, the large banks represented by China Merchants Bank have tightened the quota of large-value certificates of deposit, and it is difficult to find a single order. On April 10, it was reported on the Internet that China Merchants Bank had stopped issuing new three-year and five-year large-value certificate of deposit product quotas, and many large banks had also begun to reduce the quota of large-value certificate of deposit products.
What is the reason behind the different approaches of large banks and small and medium-sized banks? In this regard, industry insiders said that large banks have reduced and adjusted large certificates of deposit to better manage the cost of liabilities and net interest margins. In some regions, small and medium-sized banks have moderately increased the number of large-value certificates of deposit products to increase customer acquisition and deposit absorption.
Small and medium-sized banks have issued new certificates of deposit with large amounts, and the quota of large banks is urgent
Since April, a number of small and medium-sized banks have actively launched large-value certificate of deposit products. For example, the three-year and five-year interest rates of a large-amount certificate of deposit of 200,000 yuan in a rural credit cooperative in Guangxi even reached 3.25%. Titanium Media APP learned that after the year, a number of small and medium-sized banks in Fujian, Jiangxi, Zhejiang, and Shanxi successively issued large-amount certificates of deposit with an interest rate of about 3%.
Image source: The public account of a rural credit cooperative in Guangxi
On the contrary, the big banks have tightened the sale of three-year and five-year certificates of deposit. There are no three-year and five-year products for large-denomination certificates of deposit on the China Merchants Bank APP. There are two tiers of large-denomination certificate of deposit products on sale: the first tranche is sold at 200,000 yuan, with an interest rate of 1.65%-2.15% and a term ranging from one month to two years, and the second tranche is sold at a minimum of 500,000 yuan, with an interest rate of 1.90% and 2.15%, with a term of six months and two years respectively. China Construction Bank, China CITIC Bank and other banks have also said that they have no large-amount certificates of deposit quota since last year, and currently only have fixed deposits.
Simply comparing interest rates, small and medium-sized banks have a clear advantage over large banks in terms of large-denomination certificates of deposit, with the highest interest rate difference reaching about 1%. Industry insiders said that small and medium-sized banks have a relatively weak advantage in absorbing deposits, and they can achieve the purpose of acquiring customers and collecting savings by borrowing high interest rates. Large banks have reduced and adjusted large certificates of deposit to better manage the cost of liabilities and net interest margins.
Small and medium-sized banks have attracted deposits, and large banks have lowered interest rate spreads
The opposite operation in the large-denomination certificate of deposit business may be related to factors such as market competition, customer positioning, and liability structure of large, medium, and small banks.
Large banks have lowered their large certificates of deposit (CDs) mainly in response to the continued narrowing of net interest margins.
According to data released by the State Administration of Financial Supervision and Administration, as of the end of 2023, the net interest margin of mainland commercial banks fell to 1.69%, a decrease of 0.04 percentage points from the first three quarters of 2023, falling below the 1.7% mark for the first time, and the net interest margin of China's large banks fell to 1.62%.
"Due to a variety of reasons, the net interest margin of the banking industry is still under pressure to narrow this year, and commercial banks mainly hedge the pressure of interest margin by reducing deposit interest rates more sharply, striving to increase the proportion of demand deposits, and continuously optimizing the loan structure. Xue Hongyan, vice president of Xingtu Financial Research Institute, said.
At the results conference, a number of banks stated that they would take active measures to control the cost of debt. Zhang Yi, deputy governor of the Bank of China, revealed that the bank will increase the pressure on high-cost deposits such as large-value certificates of deposit with a maturity of more than 3 years in 2024. Li Bin, vice president and secretary of the board of directors of Minsheng Bank, said at the results conference that the overall cost of deposits is relatively high, and efforts should be made to broaden low-cost and stable sources of funds.
Dong Ximiao, chief financial researcher of Zhaolian Financial, said that in 2024, commercial banks will continue to reduce deposit rates to further reduce the cost of funds and ease the pressure of narrowing interest rate spreads. In addition to lowering deposit interest rates, commercial banks should also reduce interest subsidies and fees other than interest on deposits, so as to further reduce the hidden costs of deposits.
At the same time, due to the weak attractiveness and geographical constraints of small and medium-sized banks in absorbing deposits, while large state-owned banks and joint-stock banks manage their net interest margins by adjusting large-denomination certificates of deposit, some small and medium-sized banks are selling large-denomination certificates of deposit against the trend for the purpose of attracting savings and gaining customers.
In mainland China, small and medium-sized banks usually refer to commercial banks with relatively small assets and strong regional characteristics, mainly including national and regional joint-stock commercial banks, urban commercial banks, rural commercial banks, rural cooperative banks, rural credit cooperatives, village and township banks, and private banks. This type of bank usually focuses on serving a specific region or specific customer group, such as small and medium-sized enterprises, farmers, and rural economic development. Its characteristics include regionality, small individual scale, and a majority of small and medium-sized customers. Like large banks, small and medium-sized banks are an important part of the mainland's financial system.
Ming Ming, chief economist of CITIC Securities, said that for local small and medium-sized banks, the degree of geographical and security is not as good as that of national banks, and the pressure on deposits will be greater. Against the backdrop of the reduction in the quota of certificates of deposit of national banks, small and medium-sized banks have issued large certificates of deposit to enhance the attractiveness of depositors, thereby encouraging depositors to save with the bank.
Xue Hongyan said that recently, some banks have imposed a large certificate of deposit limit, which is another attempt to control the cost of debt and stabilize the net interest margin. However, depending on the specific development status of different banks, the development status of the region is quite different, and the pricing pressure on the asset side is different, and individual banks are not in a hurry to reduce high-interest liabilities based on their own strategic demands, and obtain a higher share of deposits through large-amount certificates of deposit, although it is not the mainstream of the industry, but it is also a normal phenomenon.
Large certificates of deposit may gradually slow down, and experts call for multi-asset allocation
As for the future development trend of large-denomination certificates of deposit, industry experts believe that it may gradually slow down in the future, and suggest that depositors pay attention to the diversified allocation of wealth.
Xue Hongyan pointed out that in the short term, whether it is the need for stable domestic growth and real estate, or the world's major central banks are about to enter the interest rate cut cycle, it indicates that the mainland will continue to cut interest rates. In order to stabilize the level of bank interest margins, it is inevitable to reduce the deposit interest rate by a larger margin, and the deposit interest rate will most likely continue to decline in the future, and the interest rate on the issuance of large-amount certificates of deposit will gradually fall along with the deposit interest rate. In the face of the downward trend of deposit interest rates, savers should take the initiative to change their thinking and achieve a balance between risk and return through diversified allocation of wealth.
Bank wealth management, gold, stocks, bonds, equity funds and other investment varieties may be alternative options.
Ming Ming said that considering the downward trend of deposit interest rates, it is expected that the issuance of large-amount certificates of deposit may gradually slow down in the future, and the overall interest rate will still decline. However, the deposit rate of small and medium-sized banks is expected to fall less than that of national banks. For depositors, on the one hand, they should grasp the appropriate deposit products in combination with their liquidity needs, and on the other hand, they can also invest part of their funds in low-risk asset management products such as bank wealth management. (This article was first published on the Titanium Media APP, author | Yan Fanyao, editor - Liu Yangxue)
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