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Following the large state-owned banks, as of July 29, 12 joint-stock banks including Industrial Bank and China Everbright Bank have all lowered their deposit interest rates.

Industry experts believe that the current bank net interest margin has narrowed to the lowest level in history. This time the bank's adjustment of deposit interest rates will help stabilize liability costs and enhance the sustainability of financial services for the real economy.

Joint-stock banks followed suit and cut interest rates

On July 29, several national joint-stock banks, including China CITIC Bank, Industrial Bank, China Zheshang Bank, Bohai Bank, Hengfeng Bank, Pudong Development Bank, and China Everbright Bank, respectively issued announcements stating that they would lower the listed interest rates for RMB deposits starting today.

Not long ago, the six state-owned banks collectively lowered their RMB deposit interest rates, and the scope of adjustment was wide, involving all deposit types such as demand, time, agreement deposits, and notice deposits, with the reduction ranging from 5 to 20 basis points.

Specifically, the listed interest rate for demand deposits was reduced from 0.2% to 0.15%, a decrease of 5 basis points; for time deposits, the interest rates for three-month, six-month and one-year deposits were reduced to 1.05%, 1.25% and 1.35%, respectively, all reduced by 10 basis points; the interest rates for two-year, three-year and five-year deposits were reduced to 1.45%, 1.75% and 1.80%, respectively, all reduced by 20 basis points. In addition, the interest rates for agreement deposits and notice deposits were also reduced by 10 basis points accordingly.

Industry experts believe that there are many reasons why banks lower deposit rates, including economic environment and market interest rate changes, bank operating pressure and liability costs, guiding consumption and investment, policy requirements and market competition. These factors work together to prompt banks to make the decision to lower deposit rates after weighing the pros and cons.

Bank profitability is expected to improve

It is understood that since April 2022, when the People's Bank of China guided the interest rate self-discipline mechanism and established a market-based deposit interest rate adjustment mechanism, commercial banks have proactively lowered their deposit listing rates many times. This round of adjustments is the fifth round of proactive adjustments made by commercial banks based on their own operating conditions and market conditions after the establishment of the deposit interest rate market-based adjustment mechanism.

As we all know, the deposit interest rate will directly lead to a reduction in depositors' deposit interest income in the bank, and the depositors' deposit income will shrink. Therefore, some depositors may reduce savings and increase consumption expenditures, thereby promoting consumption to a certain extent.

Some people believe that in order to seek higher returns, depositors may transfer funds from bank deposits to other investment channels, such as stocks, bonds, funds, etc. This behavior will promote the active capital market.

For enterprises, a reduction in deposit rates is usually accompanied by a reduction in loan rates. The reduction in financing costs can reduce the debt burden of enterprises and improve profitability and cash flow. In particular, for enterprises that rely on bank loans for expansion, such as real estate and infrastructure companies, the reduction in financing costs will bring significant benefits, thereby increasing the attractiveness of their stocks.

For banks, a reduction in deposit rates will help reduce their liability costs, ease the pressure on net interest margins, and improve their profitability.

"Although bank stocks may face certain downward pressure in the short term because the decline in deposit rates will narrow banks' net interest margins, in the long run, with the decline in loan rates and the economic recovery, banks' overall business may improve, which will ultimately be beneficial to bank stocks." A banking analyst at China Securities said that the improvement in banks' profitability will also provide more financial support for the stock market.

In terms of specific performance, bank stocks have performed well recently, with the share prices of many bank stocks hitting record highs. On July 23, the banking sector as a whole fluctuated and strengthened, with the share prices of many bank stocks such as Industrial and Commercial Bank of China, Agricultural Bank of China, and Bank of China soaring. In addition, as listed banks successively announced their first-half performance reports, many banks achieved double growth in revenue and net profit, further boosting market confidence.

This round of interest rate cuts was led by large banks, with small and medium-sized banks selectively following suit. Some industry insiders predict that commercial banks' liability cost control will achieve significant results.