Abstract: Due to profit concessions and other factors, the net interest margin of Chinese commercial banks has repeatedly refreshed its lowest point, falling to a new low of 1.69% at the end of 2023
Text: Chen Hongjie
Editor|Hu Rongping, Yuan Man
The battle to defend the bank's liabilities is underway. On May 8, the mobile banking of Minsheng Bank stopped selling large-value certificates of deposit with a maturity of 6 months and above, leaving only two deposit products of 1 month and 3 months.
Not only Minsheng Bank, Industrial and Commercial Bank of China, Bank of China, China Construction Bank, China Merchants Bank and many other large and medium-sized banks have stopped selling long-term large-value certificates of deposit, "We will be very strong this year on high-cost deposits, including agreement deposits, structured deposits, and large-amount certificates of deposit with a maturity of more than three years. The management of a large state-owned bank said.
Recently, a number of banks, including China Everbright Bank, Guangfa Bank, Bohai Bank, Dalian Rural Commercial Bank, etc., have also issued announcements on the removal of smart notice deposit products.
Smart notice deposits automatically roll over with interest without prior notice, and once became a tool for banks to grab customers. "But what banks are lacking at the moment is not deposits, and if they want to alleviate the pressure of narrowing interest rate spreads, the first consideration is to optimize the deposit structure and reduce the cost of debt." A banking executive said.
In addition, since 2022, residents' enthusiasm for deposits has been high, and the scale of bank deposits has grown rapidly, which has further affected the enthusiasm of banks to absorb long-term deposits or pay more interest. According to data from the People's Bank of China, as of the end of March 2024, the balance of RMB deposits was 295.51 trillion yuan, a year-on-year increase of 7.9%; In the first quarter, new RMB deposits amounted to 11.24 trillion yuan, of which household deposits increased by 8.56 trillion yuan.
Pressure drop large certificates of deposit
In Minsheng Bank's mobile banking, only large-value certificate of deposit products with a maturity of January and March are on sale, with an interest rate of 1.70%, and related deposit products of 6 months and above have been removed from the shelves.
This was seen as a response to Minsheng's senior management at the bank's earnings conference in March 2024. "From the liability side, the overall deposit cost of Minsheng Bank is relatively high, so it will strive to broaden the source of low-cost and stable funds." Li Bin, vice president and secretary of the board of directors of Minsheng Bank, said.
Further, the average cost rate of deposits absorbed by Minsheng Bank in 2023 is relatively high, at 2.31%, up from 2.29% in 2022, the average cost rate of personal time deposits is 2.96%, and the average cost rate of corporate time deposits is 2.82%. In terms of customer structure, Minsheng Bank's corporate deposits accounted for 71.65%, and personal deposits accounted for 28.17%. From the perspective of term structure, Minsheng Bank's fixed deposits accounted for 68.98%, and demand deposits accounted for 30.84%.
In 2023, the average yield of Minsheng Bank's corporate loans and advances will be 3.88%, down 0.05 percentage points from 2022, and the average yield of its personal loans and advances will decline faster at 4.97%, down 0.37 percentage points year-on-year.
In fact, for most large and medium-sized banks, including Industrial and Commercial Bank of China, Bank of China, China Construction Bank, China Merchants Bank, etc., banks have stopped selling long-term large-denomination certificate of deposit products. At present, China Merchants Bank has a relatively rich range of short-term products, and among the large-value certificates of deposit with a minimum investment of 200,000 yuan, the corresponding interest rates for 1 month, 3 months, 6 months, 1 year and 2 years are 1.65%, 1.70%, 1.90%, 2.00% and 2.15%; Among the large-denomination certificates of deposit with a minimum investment of 500,000 yuan, the corresponding interest rates for 6-month, 1-year, 2-year and other maturities are 1.9%, 2.00% and 2.15%.
The suspension of the sale of long-term large certificates of deposit is related to the pressure on the liability side of the banking industry. Taking ICBC as an example, the 2023 annual report shows that the deposit interest expense was 589.68 billion yuan, an increase of 109.605 billion yuan or 22.8% over the previous year, mainly due to the 13.8% increase in the average balance of customer deposits and the 14 basis points increase in the average interest payment rate. Among them, the average interest payment rate of the bank's corporate time deposits was 2.65%, an increase of 0.06 percentage points compared with 2022, and the average interest payment rate of individual time deposits decreased but did not decline much, still at 2.67%.
However, not all large and medium-sized banks have stopped selling long-term certificates of deposit. For example, the Agricultural Bank of China is still selling three-year certificates of deposit with an interest rate of 2.35 percent. This may be related to the fact that the interest rate of the Agricultural Bank of China has been maintained relatively well in the past.
At the end of 2023, ABC's interest payment rate on customer deposits (RMB) was 1.71%, maintaining the best among its peers. "In 2024, we will take the initiative to optimize the deposit structure; accelerate the promotion of digital operations and increase settlement deposits; Give full play to the advantages of ABC's network of outlets and huge customer base, and organize more and better low-cost deposits. The management of the Agricultural Bank of China said recently.
Some people in the banking industry said that whether or not to stop selling long-term large-denomination certificates of deposit is not a generalization, and it needs to be determined according to the interest payment rate of the previous stock and other indicators such as assets and liabilities.
Clean up Smart Notice Deposits
In addition to the suspension of the sale of long-term large-value certificates of deposit, another batch of banks have recently removed smart notice deposit products. For example, on April 30, Bohai Bank said that its automatic rollover of personal call deposit products will be automatically terminated from May 1, 2024, and after the termination, the existing automatic rollover of personal call deposit products will be uniformly changed to "call deposit+" products.
"If you need to withdraw the 'Call Deposit+' product, the depositor can initiate an advance notification and agreed withdrawal through the counter or e-banking channel (if it has been opened)." Call Deposit+' products are not subject to auto-rollover. Bohai Bank said.
Everbright Bank recently announced that the accounts that have signed up with the bank's automatic rollover call deposits, such as the bank's corporate weekly plan, corporate smart deposit A (37-day deposit period) and corporate smart deposit B (7-day deposit period), will stop automatically rolling over call deposits from May 15, and the funds will be transferred back to the contracted current account after the maturity of the rolled over call deposits, and then the system will automatically terminate the contract. "Starting from May 15, 2024, if the customer's RMB agreed deposit rate is higher than 1.15%, the system will automatically calculate the interest in stages and adjust the agreed interest rate to 1.15%."
According to the People's Bank of China Financial Institutions RMB Deposit Benchmark Interest Rate Adjustment Table, the benchmark interest rates for 1-day and 7-day call deposits are 0.80% and 1.35% respectively, and the benchmark interest rate for agreed deposits is 1.15%.
Dalian Rural Commercial Bank also said on May 6, "From May 14, 2024, the automatic rollover function of our bank's smart notice deposit product will be cancelled, and customers need to make a notice appointment 1 day/7 days before the withdrawal date (consistent with the current interest calculation rules of our bank's call deposit)." ”
The so-called intelligent notice deposit is an innovation on the basis of call deposit, omitting the links of "customer notice in advance" and "customer withdrawal on time after notification", which can realize automatic rollover and create more benefits for customers. "In the past, this was a powerful tool for accumulating deposits, and we used this way to increase the stickiness to corporate and retail customers." A bank executive said.
However, due to the automatic interest calculation and other characteristics of smart notice deposits, there is a suspicion of high-interest savings, which will boost the bank's cost of funds. As early as March 2020, the Notice on Strengthening the Administration of Deposit Interest Rates stipulated that all depository financial institutions should rectify and withdraw interest-bearing products in advance in accordance with regulations. The above products also have the attribute of automatic interest accrual.
In May 2023, with the adjustment of the self-regulatory upper limit of agreement deposits and call deposits, some banks took the lead in suspending the smart notice deposit business. For example, Ping An Bank announced that from May 14, 2023, the sale of "smart notice deposit" products will be suspended, and new contracts will no longer be supported in both online and offline channels.
In March 2024, Fuzhou Rural Commercial Bank, Xiamen Rural Commercial Bank, Lianjiang Rural Commercial Bank and other rural commercial banks and village banks have successively issued announcements saying that the smart notice deposit product will be automatically terminated on March 21, 2024.
"The current benchmark interest rate for demand deposits in banks is 0.35%. The effective interest rate of some smart call deposit products is higher than the listed interest rate and the maximum limit of 1.15%, or even more than 1.5%, increasing the cost of debt, so regulators and banks are taking action to clean up such products. A market analyst said.
Protect your net interest margin
Due to profit concessions and other factors, the net interest margin of Chinese commercial banks has repeatedly refreshed its lowest point, falling to a new low of 1.69% at the end of 2023. "This is a situation that has never been encountered in the banking industry, and it deserves serious study by every practitioner." A senior regulator said.
If we want to maintain the net interest margin, it is the top priority to reduce the interest rate and reduce the large certificates of deposit. "The interest rate on the asset side has fallen rapidly, and it is difficult to recover in the short term, so we can only reduce the cost of interest payment on the liability side." A number of banking sources said.
According to data from the People's Bank of China, the weighted average interest rate of corporate loans will be 3.88% in 2023, continuing to hit a new low since statistics. In March 2024, the weighted average interest rate on newly issued corporate loans was 3.75%, 1 basis point lower than the previous month and 22 basis points lower than the same period last year. The interest rate on new personal housing loans was 3.71%, 15 basis points lower than the previous month and 46 basis points lower than the same period last year.
For quite some time in the past, the cost of deposits has not been reduced much. There are also many banks with an average cost ratio of more than 3% for personal fixed deposits in 2023, such as Bank of Communications at 3.1%, Industrial Bank at 3.11%, Bank of Qingdao at 3.15%, Bank of Chongqing at 3.53%, Bank of Zhengzhou at 3.64%, etc.
Some analysts said that many banks have a scale complex and want to pursue more deposits and assets, so they have extended various means of high-interest savings, which has also contributed to the rise in debt costs to a certain extent.
In addition, among the relevant data of the 23 listed banks that have been released recently, the total balance of fixed deposits in 2023 will be 99.36 trillion yuan, an increase of 16.8 trillion yuan or 20.33% year-on-year compared with 82.57 trillion yuan in 2022.
Zhang Yi, deputy governor of the Bank of China, recently said that it is necessary to continue to promote the reduction of debt costs, increase the intensity of customer acquisition in scenarios, and promote the increasing proportion of low-cost settlement funds through business opportunities such as payroll, quick payment, and treasury. "At the same time, we will reduce high-cost deposits, including agreement deposits, structured deposits, and large-value certificates of deposit with a maturity of more than three years." He said.
"Adhere to the core deposit-based promotion strategy, and expand stable low-cost deposits through settlement services, wealth management, product innovation, etc.; Strengthen cost control, and reduce deposit costs through self-discipline mechanism guidance, low-cost deposit increment assessment, and high-cost deposit reduction. A number of other bank management people said.
On April 8, 2024, the self-regulatory mechanism for market interest rate pricing issued the "Initiative on Prohibiting the Acquisition of Savings through Manual Interest Replenishment and High Interest Rates to Maintain the Competition Order of the Deposit Market", requiring that from now on, banks shall not promise or pay customers in any form the supplementary interest that exceeds the authorized upper limit of the deposit interest rate.
"Whether it is regulatory requirements or business logic, the deposit interest rate of the banking industry will continue to be lowered this year, and the scale of long-term and high-interest deposits will be strictly controlled." A banker said.
(Source of this article: Finance and Economics)
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