Economic Watch: Large state-owned banks collectively cut deposit rates, or trigger three "chain reactions"

(Economic Watch) Large state-owned banks collectively cut deposit interest rates, or trigger three "chain reactions"

Beijing, 6 Jun (ZXS) -- China's large state-owned banks have recently taken collective action: Six large Chinese state-owned banks, including the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, Bank of Communications, and Postal Savings Bank of China, have collectively announced a reduction in the interest rate on renminbi deposits.

The collective reduction of deposit interest rates by large state-owned banks may bring about three "chain reactions" in addition to reducing some deposit interest rates.

First, will the deposit "move"? The chief economist of CITIC Securities clearly said that for depositors, the attractiveness of the reduction of deposit interest rates to depositors will be weakened, the phenomenon of "deposit moving" may be strengthened, and individuals may transfer deposit funds to activities such as consumer investment. Considering that depositors often have higher requirements for the safety of funds that are originally deposits, low-risk asset management products such as bank wealth management may usher in incremental funds.

"Considering that some wealth management will also allocate products such as deposits, the decline in interest rates of deposit products may also drive the yield of wealth management products down." Ming Ming reminded.

Wang Yifeng, chief analyst of the financial industry of Everbright Securities, said that deposits "cut interest rates" or change residents' currency storage behavior. If time deposits "cut interest rates again", the certainty impact is that the real interest payment rate of the financial system will be lower, and the flattening of the yield on the core debt curve may lead to a shift in deposit movement to short-end wealth management again, promoting the scale of wealth management.

Second, will there be a change in LPR (Loan Market Quoted Rate)? There is a view in the market that the decline in bank funding costs triggered by the reduction in deposit rates may open a window for further reductions in LPR, thereby benefiting the further decline in financing costs for enterprises and individuals.

Wang Yifeng believes that the deposit rate has been lowered again, which may open the window for the LPR quotation to be lowered. The deposit "re-interest rate cut" provides a cushion for the downward adjustment of LPR quotations, and the launch of MLF (medium-term lending facility) interest rate cuts in the third quarter is not excluded.

"Since the beginning of the year, the self-discipline mechanism has guided commercial banks to implement a series of policies to reduce deposit costs, but due to the intensification of deposit regularization, the pressure on the net interest margin of the banking system is still large, and the loan quotation mechanism is not enough to drive commercial banks to actively reduce LPR alone. If the time deposit rate is lowered again, it may open the window for LPR reduction. Wang Yifeng said.

The research team of CITIC Securities predicts that the MLF rate may be cut by 6 to 5 basis points in June, while banks may also cut the deposit rate again to boost the economy; If the MLF rate is adjusted as scheduled, then the LPR quotation is likely to go lower, and the possibility of asymmetric reduction is higher.

"The continued reduction of LPR will mainly depend on the performance of bank interest margins." Wen Bin, chief economist of Minsheng Bank, believes that in addition to relying on the reduction of policy interest rates, the most important thing is to match the improvement of the debt side to ensure that the bank's net interest margin remains at a relatively stable level. In the coming period, the probability of LPR will remain unchanged, and the interest rate of newly issued general loans and corporate loans may stabilize at about 4.50% and 4%, and the downward range is not expected to be too large.

Third, will small and medium-sized banks follow suit? An important background of this round of deposit rate reduction is the pressure of narrowing the interest rate spread of commercial banks, and there are also views that after the large state-owned banks cut the deposit listing rate, it may once again drive small and medium-sized banks to gradually follow the reduction.

Zeng Gang, director of the Shanghai Finance and Development Laboratory, said that at present, bank interest rate spreads are narrowing, especially for small and medium-sized banks. In this context, if the deposit rate is not reduced, it will make it difficult to maintain the environment of low interest rates on the loan side, affecting the ability of financial services to support the real economy.

He believes that after the big state-owned banks cut the deposit rate, different types of banks may follow, and this time the follow-up may be faster. Especially for some small and medium-sized banks with a high proportion of medium and long-term deposits, the effect of cost savings may be more obvious, which will have positive significance for the stable operation of the entire banking industry, especially the sustainable development of small and medium-sized banks.

Liang Si, a researcher at the Bank of China Research Institute, said that at present, major banks have taken the initiative to reduce deposit rates according to market changes, and other banks may also follow suit. After the decline in deposit interest rates, it is expected to continue to bring demonstration effects, and small and medium-sized banks are likely to follow up with the reduction of deposit interest rates. (End)