news

A new round of deposit interest rate adjustments is being implemented among various types of banks.

After the six major banks collectively lowered their deposit interest rates on July 25, some joint-stock banks also quickly followed suit.China Merchants Bank、Ping An BankAll of them updated their deposit interest rate tables on the 26th. On the same day, the First Financial reporter asked several other joint-stock banks, and the staff said that they had not received any new adjustment notices. According to the reporter, some joint-stock banks had already lowered their implementation interest rates in advance last week.

In terms of the adjustment range, the two joint-stock banks' deposit interest rate cuts were basically consistent with those of the major banks, and the adjustment range for time deposits of 2 years and above was even greater. At present, the 3-year and 5-year time deposit rates of the banks that have made adjustments have all dropped by 20BP. Except for Ping An Bank's 2-year deposit rate, which dropped by 30BP, the 2-year deposit rates of China Merchants Bank and the six major banks dropped by 20BP.

This is also the first time that state-owned banks have collectively lowered their deposit interest rates again after a lapse of 7 months since December 22, 2023. After this round of adjustments, the interest rates of state-owned banks officially bid farewell to the "2 era", and the highest mainstream execution interest rate level has also dropped from 2.35% to 2.15%.

Previously, an authoritative market expert told China Business News that this reflects the effective role of the deposit interest rate market-based adjustment mechanism and the further enhancement of commercial banks' market-based pricing capabilities. Many industry insiders analyzed that based on past experience, joint-stock banks and small and medium-sized banks will also gradually follow suit and reduce their rates.

Regarding the impact of this round of deposit rate cuts, institutions generally believe that on the one hand, it will ease the pressure on the net interest margin of the banking industry, and on the other hand, it will promote the transformation of savings into consumption and investment, while creating space for the steady decline in financing costs for the real economy. Taking into account various factors, many interviewees believe that it is not ruled out that there will be at least one more deposit rate cut this year, which may further intensify the "movement" of deposits.

A new round of deposit rate cuts is coming

Specifically, China Merchants Bank adjusted the interest rates of various types of RMB savings deposits, and the adjustment range was basically consistent with that of large state-owned banks. Among them, the interest rates of 2-year, 3-year, and 5-year time deposits were reduced by the largest margin, by 20BP, and after adjustment, they were 1.45%, 1.75%, and 1.8%, respectively. Among other types of savings deposits, except for the 5BP reduction of demand deposits, the rest of the varieties were generally reduced by 10BP, among which the adjusted interest rates of 3-month, 6-month, and 1-year time deposits were 1.05%, 1.25%, and 1.35%, respectively.

Ping An Bank's adjusted interest rates for some types of RMB savings deposits are relatively higher, but the bank's 2-year fixed deposit rate adjustment is more significant, reaching 30BP, and the adjustment range of other deposit rates is basically consistent with that of major banks. At present, the bank's current deposit rate is 0.15%, which is consistent with that of major banks; the 3-month, 6-month, and 1-year fixed deposit rates are 1.1%, 1.35%, and 1.55% respectively; the 2-year, 3-year, and 5-year fixed deposit rates are 1.6%, 1.8%, and 1.85% respectively.

In addition, Hengfeng Bank also updated the deposit interest rates on its official website on July 26, but the overall interest rate level remained unchanged.

After the listed interest rate was adjusted, the execution interest rates of various banks also followed suit and were lowered, but most of them still have advantages over the large state-owned banks.

According to the reporter, the highest interest rate of China Merchants Bank's savings deposit is currently the 2-year special deposit, which has dropped from 2.15% to 1.95%, 50BP higher than the listed interest rate, and there is no quota for the 3-year term. Ping An Bank's 3-year fixed deposit rate has been reduced from 2.6% to 2.55% and 2.4%, and the latest 5-year fixed deposit rate is 2.45%, 60BP higher than the adjusted listed interest rate.

Among the joint-stock banks that have not yet carried out a new round of deposit rate adjustments, the mainstream interest rate for three-year time deposits is as high as around 2.6%, and the special deposit products of some joint-stock banks can even reach 2.7% and 2.75%.

On July 25, three working days after the 7-day reverse repo rate cut, six state-owned banks once again started a round of deposit interest rate adjustments. Many of the banks updated the RMB savings deposit interest rates in the early hours of the same day, and different types of RMB deposit interest rates were adjusted to varying degrees. Among them, the interest rates for full deposits and withdrawals of 2 years and above were generally reduced by 20BP, and the interest rates for full deposits and withdrawals, zero deposits and withdrawals, full deposits and zero withdrawals, and deposits with interest and principal were reduced by 10BP for less than 2 years, and the interest rates for demand deposits were reduced by 5BP. At the same time, the interest rates for agreement deposits and notice deposits were also reduced by 10BP.

What's different this time?

This is also the first time that state-owned banks have collectively lowered their deposit interest rates in seven months since December 22, 2023. Since the establishment of the interest rate marketization adjustment mechanism in April 2022, state-owned banks have conducted six rounds of deposit interest rate adjustments, five of which involved collective adjustments to the listed interest rates.

In comparison, the two recent adjustments to the deposit interest rates of state-owned banks were larger than the previous three adjustments, but the adjustment of long-term products continued to be more intensive. Since September 2022, the 3-year and 5-year fixed deposit interest rates of state-owned banks, which are most concerned by depositors, have fallen by 100BP and 95BP respectively.

In fact, considering the decline in the latest LPR (loan market benchmark rate) and the continued narrowing of bank net interest margins, the market has already anticipated a new round of deposit rate adjustments. An authoritative market expert said that this round of deposit rate cuts by major banks was independently decided based on the previous decline in the 1-year LPR and the market interest rate trend such as the treasury bond yield, which is a reflection of the more market-oriented deposit rate.

According to the requirements of the market-based adjustment mechanism for deposit interest rates, deposit interest rates will be reasonably adjusted with reference to the bond market interest rate represented by the 10-year treasury bond yield and the loan market interest rate represented by the 1-year LPR (loan market benchmark rate) quotation.

In November 2023, the Monetary Policy Department of the People's Bank of China published an article entitled "Continue to Deepen Interest Rate Marketization Reform", which proposed to improve the interest rate transmission mechanism of "market interest rate + central bank guidance → LPR → loan interest rate" and "LPR + treasury bond yield → deposit interest rate".

On July 22, after the 7-day reverse repurchase operation (OMO) rate was adjusted from 1.80% to 1.70%, the 1-year and 5-year LPRs both dropped by 10 basis points simultaneously, and were recently reported at 3.35% and 3.85% respectively.

Judging from the pace of previous adjustments, it was mainly the demonstration and guidance of large banks, and joint-stock banks responded quickly, and other types of banks followed in an orderly manner. Many industry insiders believe that this adjustment of the deposit listing rate will help stabilize the bank's net interest margin, and other commercial banks will follow suit in the future.

The above-mentioned experts said that in recent years, banks have provided great support to the real economy, and loan interest rates have dropped significantly. However, on the liability side, there is an obvious trend towards regular and long-term deposits. The effect of the deposit interest rate reduction needs to gradually emerge with the repricing of existing deposits. Some banks have been overly inward-looking and have attracted deposits through illegal manual interest payments. Affected by a series of factors, the decline in liability costs has been smaller than the decline in asset returns.

Data shows that at the end of the first quarter of this year, the net interest margin of commercial banks dropped to 1.54%, a record low. Among them, the net interest margins of large banks, joint-stock banks, city commercial banks, private banks, rural commercial banks, and foreign banks in the first quarter were 1.47%, 1.62%, 1.45%, 4.32%, 1.72%, and 1.47%, respectively.

Compared with the previous adjustments, the latest two rounds of deposit interest rate adjustments have a wider range. Wang Qing, chief macro analyst at Orient Securities, believes that the current deposit interest rate is included in the downward adjustment range this time. On the one hand, it is because the current deposit interest rate has not been adjusted in the previous two rounds of deposit interest rate cuts, which has accumulated a certain amount of momentum for adjustment. It may also be related to the recent easing of the trend of regular deposits. The latest data shows that in June, the proportion of household current deposits was 27.5%, which has risen for two consecutive months; the proportion of non-financial corporate current deposits was 28.8%, which also increased by 0.5 percentage points from the previous month.

This may intensify the “movement” of deposits

Regarding the impact of this "rate cut" on deposits, many institutional personnel mentioned that due to the slow pace of repricing on the liability side and the fact that the LPR is linked to existing loans, it may take some time for banks' interest spreads to improve.

Considering the recent LPR rate cut, bank interest rate spread pressure and the trend of regular deposits, bank deposit rates still have room to fall in the future, and a new round of listed interest rate adjustments cannot be ruled out within the year.

"Before the real estate industry stabilizes and recovers, bank deposit interest rates may continue to decline." Wang Qing believes that taking into account the economic and price trends in the future, the policy interest rate (7-day reverse repurchase rate) in the fourth quarter still has room for downward adjustment, which will lead to follow-up adjustments in the LPR quotations of the two term varieties. A new round of deposit interest rate cuts may be launched around the end of the year.

CITIC SecuritiesChief Economist Mingming also believes that a new round of deposit interest rate adjustments may be ushered in in the third quarter of this year. First, the deposit interest rate is adjusted in line with the trend after the LPR quotation is lowered, which is conducive to strengthening the linkage between deposit and loan interest rates and promoting interest rate marketization; second, in the context of financial support for the real economy, loan interest rates have declined significantly, but bank liability costs remain relatively rigid, and the interest rate spread continues to shrink, increasing operating pressure; third, the trend of regular deposits is still obvious, and the pricing of long-term deposits and some special deposit products is high.

Against this background, the market generally expects that the phenomenon of deposit "moving" will further intensify.

Mingming believes that the reduction in deposit rates may push the broad spectrum of interest rates, including government bond rates, further downward. At the same time, the phenomenon of "deposit migration" may intensify, and low-risk asset management products such as bank wealth management will usher in incremental funds, increasing the allocation of the bond market. Wang Qing also said that this round of deposit rate cuts may have a certain effect on promoting consumption on the one hand, and on the other hand, it may promote a larger scale of deposits to "move" to the wealth management end.

However, as deposit interest rates continue to decline, the wealth management market, especially cash management, will also face certain profit pressures.China Merchants SecuritiesLiao Zhiming, chief analyst of the banking industry, believes that since deposits are no longer compensated for interest, bond yields are at a historical low and wealth management yields may drop significantly. The expected annualized yield on wealth management in the second half of the year will drop to just over 2%, and scale growth is expected to slow down. Investors should also lower their expectations for investment returns on wealth management.