Fixed deposit interest rate farewell to the "3 era", bank deposit cost control and "back hand"?

Author: Wang Fangran

The bank interest rate cut is here again, this time with three joint-stock commercial banks protagonist.

Recently, three banks, Zheshang Bank, Hengfeng Bank and Bohai Bank, have intensively issued announcements on adjusting the listed interest rate of RMB deposits. The first financial reporter found that in this round of interest rate cuts, the interest rate of medium and long-term time deposits was lowered by a relatively large margin, of which the 3-year lump sum time deposit of Bohai Bank was adjusted from 3.3% to 25.2%, a reduction of 95 BP.

The industry generally believes that this is a new round of "supplementary reduction" after many small and medium-sized banks cut interest rates in April. Unlike the April wave of deposit rate cuts, which were dominated by small and medium-sized banks, this round of three are all joint-stock commercial banks, and they are also the only remaining deposit interest "highland" among the large state-owned banks and joint-stock banks. With the landing of interest rate cuts by these three banks, the fixed deposit and listing interest rates of state-owned banks and joint-stock banks have bid farewell to the "4% era".

Say goodbye to the "3 eras"

In early May, the above three banks officially announced interest rate cuts, ranging from 5~3BP.

According to the latest announcement of Zheshang Bank, from May 2023, 5, the listing interest rate of RMB deposits will be adjusted, and the listing interest rates of 5-month, half-year, one-year, two-year, 3-year and 3-year individual fixed deposit whole deposit will be reduced by 5 BP, 13 BP, 14 BP, 10 BP, 10 BP and 10 BP to 30.1%, 30.1%, 55.1%, 85.2%, 40.2% and 90.2% respectively.

At the same time, Bohai Bank announced that the two-year and five-year lump sum deposit interest rates were reduced by 5 BP to 25.2% and 40.2%; The 95-year whole deposit was revised down from 3.3% to 25.2%, a reduction of 95 BP. The official website of Hengfeng Bank also released news that the interest rate of 30-year time deposits was lowered to 3.2%.

The first financial reporter noted that after the interest rate cut, the listed interest rate of joint-stock commercial banks has completely withdrawn from the "3 era". Based on the previous relatively high interest rate of 3-year time deposits, the corresponding interest rates of Bohai Bank, Hengfeng Bank and Zheshang Bank were previously 3.25%, 3.1% and 3% respectively, and this time they were lowered to 2.95%, 2.95% and 2.9%, all of which fell below 3%.

However, it is worth noting that the interest rate of the three banks is still higher than that of some leading banks after the cut. For example, Zheshang Bank's 3-year lump sum deposit interest rate is 5.2% after adjustment, which is about 95 BP higher than the interest rate of about 2.65% for the same term of China Merchants Bank.

Why is it intensively downward?

Some institutions believe that the recent intensive reduction of deposit interest rates by banks is a "supplementary reduction" last year.

In April last year, the People's Bank of China established a market-oriented adjustment mechanism for deposit interest rates under the guidance of the interest rate self-discipline mechanism, guiding the member banks of the self-discipline mechanism to reasonably adjust the level of deposit interest rates with reference to market interest rates. In September, six major state-owned banks and some joint-stock banks lowered the interest rates of some term time deposits, and some local banks in some regions followed suit. But there are still many banks that are on the sidelines for fear of losing customers.

In April this year, the Implementation Measures for Qualified Prudential Assessment (4 Revision) (hereinafter referred to as the "Measures") issued by the self-regulatory mechanism for market interest rate pricing became the "fuse" for many banks to join the army of interest rate cuts. The Measures add "market-oriented pricing of deposit interest rates (deduction of points)". It is specified that if the quarterly average monthly adjustment of the interest rate of each key maturity time deposit and large deposit certificate of deposit of the bank is lower than the agreed adjustment range compared with the average monthly value in the second quarter of the previous year, points will be deducted on the basis of the "pricing behavior" score (2023 points in total). Some industry insiders pointed out that this has further pushed more banks to cut deposit rates.

In addition to policy factors, the narrowing of net interest margin is also the reason why many banks have taken the initiative to reduce deposit interest rates. According to data released by the China Banking and Insurance Regulatory Commission, at the end of 2022, the net interest margin of commercial banks was 1.91%, down 17 basis points year-on-year, which is also the first time since 2010 that the net interest margin at the end of the year fell below 2%. From the 2022 annual report, according to Wind statistics, among the 42 A-share listed banks, 36 banks experienced varying degrees of decline in net interest margin, accounting for 85.71%.

The net interest margin of the three stock banks that lowered interest rates this time is also under pressure. According to the annual report, the net interest margin of Zheshang Bank in 3 was 2022.2%, a slight decrease of 21BP year-on-year, and the first quarter of 6 fell another 2023BP to 2022.5% compared with the fourth quarter of 1; Bohai Bank's net interest margin was 97.1%, down 5BP from 2021.

Some insiders analyzed that the continuous narrowing of net interest margin is related to both the deposit side and the loan side. On the one hand, the overall decline in market interest rates has led to a decline in bank interest income, and on the other hand, the increase in customer deposits has led to an increase in interest expenses.

From the perspective of liabilities, the increase in the proportion of time deposits further raises the comprehensive liability cost of banks. Since the beginning of the year, the year-on-year growth rate of M2 has been at a relatively high historical level, and the growth rate of M1 in January ~ March was 3.2%, 12.6% and 12.9% respectively. The scale of new deposits also increased sharply compared with the same period of previous years, with new RMB deposits of 12.7 trillion yuan in January ~ March, a significant increase from 1.3 trillion yuan in the same period last year. At the same time, in the early days of economic recovery, corporate demand deposits remained low, resulting in the "M15-M4" scissor gap continuing to widen. The proportion of time deposits (including structured) of residents and enterprises continued to climb to 10.9%, with higher regularization of deposits and lower demand deposits, further raising the cost of comprehensive liabilities of banks.

From the asset side, LPR (loan market quotation rate) is down, superimposed on factors such as benefiting the real economy, and the loan interest rate has fallen significantly. According to the recent disclosure of the central bank, since the beginning of this year, the People's Bank of China has guided the market interest rate down by 0.1~0.15 percentage points, driving the corporate loan interest rate in the first quarter to fall by 0.21 percentage points year-on-year to 4.4%, which is a record low since statistics began.

Will deposit rates be further reduced?

Many institutions believe that deposit interest rates may fall in the future.

On the one hand, from the perspective of the "warning line" of net interest margin, it is indeed necessary for some banks to reduce deposit interest rates in the future. The MPA (Macro-Prudential Assessment System) assessment requires that the net interest margin is not less than 1.8% and rated 100 points, the score below 1.8% and not less than 0.8% is 60 to 100 points, and the score below 0.8% is 0 points. In the fourth quarter of 2022, the overall net interest margin of commercial banks was 1.9%, and many banks may have touched the net interest margin "warning line", and must find ways to expand the net interest margin by raising the loan interest rate or lowering the deposit interest rate.

On the other hand, from the regulatory side, in addition to guiding banks to reduce the interest rate of listed deposits through the revision of the self-regulatory mechanism, there are also "back-hand cards" for deposit cost control. Previously, due to the fierce competition for deposit and deposit, high-interest agreements and call deposits were more common. Some bankers told reporters that at present, such "demand-like" deposits account for about 20% of bank deposits, which has also become one of the factors driving the rise in the cost of bank liabilities. Wang Yifeng, chief analyst of the financial industry of Everbright Securities, pointed out that in terms of deposit cost control, "demand-like" deposits are an important starting point.

Wang Yifeng expects that in the second quarter, supervision will continue to strengthen the control of debt costs, especially the pricing control of high-cost self-regulatory upper limit enterprise deposits, and the most likely self-regulatory management of deposit pricing is to introduce policies for innovative demand deposits such as agreement deposits and call deposits.

From the perspective of subsequent reductions, Xiao Yu, a fixed income analyst at Zhongtai Securities, believes that compared with lowering the deposit benchmark interest rate or MLF (medium-term lending facility), it is more likely that the deposit interest rate will be reduced by itself with the loan interest rate. Since the LPR reform in 2019, the 1-year LPR has decreased from 4.31% to 3.65%, a cumulative decline of 66BP; The 10-year yield center has fallen roughly from 3.1% to the current 2.9%, down about 20BP. The deposit interest rate is more sticky, and the downward range is significantly lower than that of LPR, resulting in a decrease in net interest margin from 2.17% to 1.91%, a compression of about 26BP. Under the current pressure on interest margins, deposit interest rates can be reduced by themselves following the loan interest rate.

However, there are still uncertainties in this process. Guosheng Securities pointed out in the research report that the current cost of bank liabilities is necessary to be reduced. However, it should also be noted that the reason why bank liabilities have not been effectively reduced in the past few years is because after the marketization of deposit interest rates, banks have been forced to increase deposit interest rates in order to compete for market share. Especially in the case of limited changes in the central bank's monetary policy, the deposit certificate and fund interest rate have not trended down, which has increased the yield of wealth management, cargo base and other products, which in turn makes it difficult for deposits to decline in a trend.