Farewell to the "3 era" Six major banks cut deposit interest rates 100 million deposits for 5 years less interest of 7500,<> yuan

News background

3 years intensive downward revision 5 rounds

After 2021, the deposit rate has undergone 5 rounds of adjustment.

1. In June 2021, the central bank guided the market interest rate self-discipline mechanism to improve the formation method of deposit interest rate ceiling, changing the deposit interest rate self-discipline upper limit from the deposit benchmark interest rate multiplied by multiple to the point added, in fact reducing the deposit interest rate ceiling, and since then, a number of banks have lowered the time deposit interest rate of more than one year.

2. In April 2022, the central bank further guided the interest rate self-discipline mechanism to establish a market-oriented adjustment mechanism for deposit interest rates, and the transmission mechanism of "policy interest rate - LPR - deposit and loan interest rate" was formed, in view of the LPR cut by 4 basis points in January of that year, therefore, in April, large state-owned banks and most joint-stock banks and some regional banks lowered deposit interest rates.

3. In September 2022, state-owned banks took the lead in lowering the listing interest rates of deposits of various terms, and stock banks followed suit.

4. Around April 2023, small and medium-sized banks in many places lowered the listing interest rates of some term time deposits as a supplementary reduction in September 4.

On June 6, six large state-owned banks, including Industrial and Commercial Bank of China (8.SH), Agricultural Bank of China (601398.SH), China Construction Bank (601288.SH), Bank of China (601939.SH), Postal Savings Bank (601988.SH) and Bank of Communications (601658.SH), once again lowered their deposit listing rates. Among them, the demand deposit interest rate was lowered to 601328.0% from 25.0% previously. The interest rate on 2-year fixed deposits was reduced by 2 basis points to 10.2%, the interest rate on 05-year fixed deposits by 3 basis points to 15.2%, and the interest rate on 45-year fixed deposits by 5 basis points to 15.2%.

The bank deposit interest rates of the six major banks were all reduced to less than 2.5%, and the implementation interest rate bid farewell to the "3 era". Among them, the interest rates of 3-year and 5-year time deposits were cut the most, to 2.45% and 2.5% respectively. This means that if the deposit of 100 million yuan is withdrawn in a 5-year lump sum, the interest received will be reduced by about 7500,<> yuan.

It is understood that in order to alleviate the pressure on the debt side of banks, in recent years, deposit interest rates have shown a continuous downward trend of "small steps and fast running", and the frequency of changes has increased significantly. Especially after 2021, the deposit rate has undergone 5 rounds of adjustment. For the future, a number of industry insiders pointed out that after the downward adjustment of the large bank, the follow-up of small and medium-sized banks may carry out follow-up to varying degrees. However, there is relatively limited room for deposit rates to fall.


Medium and long-term time deposits

The adjustment is maximum

The six major banks yesterday updated the listing interest rates of RMB deposits, and the listed interest rates of demand and time deposits were lowered, and the reduction of medium and long-term time deposits was even greater.

ICBC lowered the listing interest rate of RMB demand deposits on June 6, from 8.0% to 25.0%; It also lowered the listing interest rates of 2-year, 2-year and 3-year RMB time deposits to 5.2%, 05.2% and 45.2% respectively, compared with 5.2%, 15.2% and 6.2% respectively.

The listed interest rate of RMB demand deposits of ABC, CCB, BOC, Bank of Communications and Postal Savings Bank was also lowered to 0.2%. In terms of time deposits, the annual interest rates for 3-month, 6-month, 1-year, 2-year, 3-year and 5-year tenors are 1.25%, 1.45%, 1.65%, 2.05%, 2.45% and 2.50% respectively. In terms of fractional deposits, whole deposits, and principal deposits and interest, the 1-year, 3-year and 5-year tenors were 1.25%, 1.45% and 1.45% respectively. The fixed life will be implemented at a 6% discount on the interest rate of the same grade within one year.

The execution rate is the interest rate at which depositors actually purchase deposit products, and the listed interest rate is the interest rate announced by the bank or the business premises. There is a certain difference between the listed interest rate and the actual execution rate, and the actual execution rate is generally higher than the listed interest rate, and there may be different deposit amounts and different regions. Usually, banks will first reduce the listed interest rate, but in order to attract depositors, the actual execution rate will rise to a certain extent.


Control the cost of liabilities

Demand for currency transactionality remains weak

News about the reduction of deposit rates is frequent.

In April, at least 4 small and medium-sized banks in Henan, Guangdong, Hubei, Shandong, Qinghai and other places intensively lowered the listing interest rate of RMB deposits. This wave of downward adjustment was interpreted by the market as a supplementary downward adjustment made by some small and medium-sized banks because they did not follow up on the adjustment last year.

In fact, deposit rates have experienced two waves of cuts last year, mainly driven by large banks.

In April last year, after the establishment of the deposit interest rate market-oriented adjustment mechanism, the self-discipline mechanism encouraged the adjustment of the floating ceiling, and at that time, the 4-year and 2-year interest rates of major banks were lowered by 3bp; In September last year, large banks and some stock banks successively lowered the deposit listing interest rate, and in the following months, a number of city commercial banks followed suit.

Zou Lan, director of the Department of Monetary Policy of People's Bank of China, previously said that under the condition that the overall market interest rate has dropped significantly, commercial banks adjust the deposit interest rate flexibly according to the changes in market supply and demand, comprehensively consider their own operating conditions, and flexibly adjust the deposit interest rate, and the adjustment range, rhythm and timing of different banks will naturally be different, which is a normal phenomenon in the market-oriented environment of deposit interest rate. Through the coordination of self-discipline mechanism, large banks take the lead in adjusting deposit interest rates according to changes in market conditions, and small and medium-sized banks follow up and supplement adjustments according to their own conditions, so as to maintain a relatively stable deposit interest rate differential with large banks, which is conducive to maintaining market competition order, ensuring the stability of bank liabilities, maintaining reasonable interest rate spreads, achieving sustained and steady operation, and enhancing the ability and sustainability of supporting the real economy.

Wang Yifeng, chief analyst of the banking industry of Everbright Securities, said in the research report that since the beginning of 2023, residents' consumption and enterprise investment willingness have been low, the demand for currency transactions is still weak, and both corporate and resident deposits continue to show obvious regularization characteristics. As of the end of April, time deposits accounted for 4.53% of domestic deposits, up 2.2 percentage points from the beginning of the year. Especially for the top banks, due to the higher proportion of core liabilities, the drag on deposit regularization is more obvious.

The above research report further pointed out that the current long-end interest rate level of core deposits is significantly higher than the market interest rate, and the necessity of adjustment under the background of deposit regularization has increased. At the same time, weaker loan demand has suppressed the pricing of newly occurring loans, and rolling repricing factors have suppressed the interest rate of existing loans. Under the joint squeeze of both ends of assets and liabilities, the pressure of narrowing the net interest margin of the banking system still exists, and the growth rate of net interest income has a further downward trend, and it is urgent for the banking system to further strengthen the control of debt costs, enhance the anti-risk ability of the banking system, and then stabilize the level of net interest income.


Small and medium-sized lines or follow-ups

There is limited room for deposit rates to fall

According to CaiLian News, Dai Zhifeng, director of Zhongtai Securities Research Institute, said that after the large banks are reduced, the follow-up of small and medium-sized banks may carry out follow-up to varying degrees, which will help reduce the pressure on the debt side of the industry as a whole. Although there are many types of cuts involved this time, the range is relatively small, and there is still room for the deposit interest rate to fall.

Liu Yinping, an analyst at Rong360 Digital Technology Research Institute, also believes that it is not ruled out that joint-stock banks and local banks will follow up to reduce deposit interest rates in the future, but because the deposit interest rates of local banks have been significantly lowered in the past two months, the next adjustment of banks' deposit interest rates mainly depends on their own operations, interest spreads and savings pressure, as well as the interest rate adjustments of similar banks.

CICC Research Report believes that after this interest rate cut, there is still about 1bp room for further interest rate cuts in the average deposit interest rate in the next 2-20 years (excluding this interest rate cut). If it is assumed that the deposit rate will follow the loan rate reduction, the deposit rate is expected to be reduced by 25bp back to 2017 levels. Among them, time deposits and enterprise demand deposits have more room for downward adjustment (including "innovative deposit products" such as standardized agreement deposits, call deposits, structured deposits, and Internet deposits).

Dong Ximiao, chief researcher of CML, said that the growth rate of net profit of commercial banks slowed down in the first quarter of 2023, and the net interest margin showed a downward trend quarter by quarter, which is related to the continuous reduction of fees and profits by banks, but it will affect the sustainability of reducing financing costs and will also affect the bank's ability to replenish endogenous capital. Therefore, it is still necessary to reduce the deposit interest rate and reduce the cost of debt to delay the pressure of interest margin narrowing and stabilize the income level. At the same time, considering that deposit interest rates are already at a low level, and with the macroeconomic recovery and rising financing demand, there is relatively limited room for future deposit interest rates to fall.

"For individual residents, if there are more deposits in the asset allocation, then the yield may decline." Dong Ximiao reminded that if residents want to obtain higher returns, they must bear higher risks, and if they do not want to take higher risks, they should accept lower returns. If residents pursue stable returns, residents can appropriately allocate cash management wealth management products and monetary funds in addition to deposits to balance the relationship between risk and return.

According to Daily Economic News, First Finance and Economics, Popular Network