2024.10.21

Following the collective reduction of deposit interest rates by major state-owned banks last Friday (month-day), joint-stock banks quickly followed suit. China Merchants Bank updated its latest deposit interest rates on the same day, and several other joint-stock banks announced adjustments on Monday, with the adjustment ranges for different tenors of fixed-term deposits aligning with those of the major banks, which is .

On the same day, the latest Loan Prime Rate (LPR) was released, with both the one-year and over-five-year rates decreasing from the previous month, exceeding market expectations. Multiple banking industry insiders told First Financial News that the pressure on banks' interest margins has not yet eased. This round of concentrated cuts in deposit rates will effectively counteract the new round of reductions in existing mortgage rates and their downward trend, creating more room to continue lowering financing costs for the real economy.

Based on past experience, different types of banks will follow suit in succession. Currently, some small and medium-sized banks are still "catching up" on the previous rounds of interest rate adjustments.

Fixed deposit reduction is consistent with that of large banks

Since the date, most joint-stock banks have followed the large state-owned banks in adjusting the deposit interest rates for different types of deposits. Among them, China Merchants Bank adjusted its rates in sync with the large state-owned banks on the date, while Ping An Bank updated its interest rate table on the date. On the date, China CITIC Bank, Shanghai Pudong Development Bank, Industrial Bank, China Everbright Bank, Huaxia Bank, China Minsheng Bank, and Guangfa Bank also updated their interest rate tables. Additionally, Hengfeng Bank, Zheshang Bank, and Bohai Bank have not yet followed with updates.

Last Friday, state-owned large banks, based on the current situation and their own operational needs, proactively lowered their deposit interest rates. Among them, the five major banks (ICBC, ABC, BOC, CCB, and BOCOM) generally reduced their current deposit interest rates to .%. The interest rates for various term deposits were also lowered. After the adjustment, the interest rates for fixed deposits with terms of 3 months, 6 months, 1 year, and 2 years were reduced to .%, .%, .%, and .%, respectively. The interest rates for 3-year and 5-year fixed deposits were reduced to .% and .%, respectively. Post Bank's adjusted interest rates for 6-month and 1-year fixed deposits remained slightly higher than those of other major banks.

From the perspective of the adjustment range among joint-stock banks, the several banks that have disclosed the latest round of adjustments have generally maintained consistency with the large state-owned banks, with reductions in both demand deposits and fixed deposits. Among them, the adjusted interest rate levels of China Merchants Bank continue to align with those of the large state-owned banks. The demand deposit interest rate levels of other joint-stock banks are consistent with those of the large banks, while the fixed deposit interest rates for different terms are slightly higher, but the majority of the listed interest rates have been reduced to a maximum of .%.

From the perspective of execution rates, different types of banks can increase their rates within a certain range based on the posted rates. After this round of adjustments to the posted rates, the execution rates of state-owned banks have fallen below % across the board, and even after adjustments, it is difficult to find deposit rates above % among joint-stock banks. Taking the Industrial and Commercial Bank of China as an example, currently, except for the annual personal pension-dedicated deposit with an annual interest rate of up to .%, the highest execution rate for lump-sum deposits has dropped to .% (for one year), an increase over the posted rate; the interest rate for fixed deposits over one year continues not to be increased, resulting in an inversion with the one-year term.

After several rounds of adjustments, the deposit-gathering advantage of joint-stock banks over state-owned banks has also narrowed. Currently, the maximum execution interest rate for fixed deposits at most joint-stock banks has dropped to .%. Banks that have not yet undergone a new round of interest rate adjustments, such as Bohai Bank, Zheshang Bank, and Hengfeng Bank, still offer fixed deposit execution rates exceeding %, with the interest rate for special deposits reaching .% and .% under certain conditions. Taking a one-year lump-sum deposit as an example, the difference in interest received before and after the adjustment for a deposit of 10,000 yuan is 100 yuan, and for a deposit of 100,000 yuan, the difference is 1,000 yuan.

All types of banks will follow up comprehensively one after another

This marks the second round of deposit interest rate cuts within the year, following the previous one just a few months ago. It is also the sixth time since January 2015 that national banks have proactively lowered deposit rates, led by the major banks. In terms of the adjustment magnitude, this round is more significant than the previous one.

For this round of adjustments, the market had long anticipated it. According to First Financial News, even before the National Day holiday, some local branch representatives of national banks had already received a "pre-notification" from their headquarters. On the day of the State Council Information Office press conference, the People's Bank of China Governor Pan Gongsheng announced a reduction in the central bank's policy interest rates and stated that following this adjustment, it is expected to lead to a decrease of about 0.25 percentage points in the Medium-term Lending Facility (MLF) interest rate, with the Loan Prime Rate (LPR), deposit rates, and others also expected to decline by 0.1 to 0.2 percentage points.

After the adjustment of deposit interest rates by major banks, the latest round of cuts has also been implemented. The interest rates for one-year and above terms have decreased compared to the previous month, exceeding market expectations. In the view of market participants, this indicates that the market-oriented interest rate adjustment mechanism has been further improved, and the interest rate transmission channels have been effectively unblocked.

At the same press conference mentioned above, Pan Gongsheng announced the launch of a new round of adjustments to existing mortgage loan rates, guiding commercial banks to reduce the rates of existing mortgage loans to near the level of newly issued loans, with an expected average reduction of about . percentage points. According to the details disclosed by various banks and the information revealed by Deputy Governor of the People's Bank of China, Tao Ling, at a press conference of the State Council Information Office on July 10th, most existing mortgage loans will be adjusted in bulk on August 1st, with some smaller banks adjusting slightly later, but the overall process will be completed before August 1st.

In the eyes of many industry insiders, the current net interest margin of banks remains under pressure. This round of concentrated reductions in deposit interest rates is not only an inevitable choice for commercial banks to cope with the narrowing of net interest margin, but also a reflection of the effective functioning of the deposit interest rate market-oriented adjustment mechanism. The People's Bank of China disclosed in its second-quarter monetary policy implementation report this year that in [month], the PBOC guided the establishment of a market-oriented adjustment mechanism for deposit interest rates by the interest rate self-discipline mechanism, helping financial institutions and the market to better adapt to and become accustomed to the market-oriented adjustment of deposit interest rates. Large banks have previously taken the initiative to reduce deposit interest rates in five rounds, respectively in [month], [month], [month], [month], and [month].

According to the market-oriented adjustment mechanism for deposit interest rates, deposit rates are linked to the quoted rates for term deposits and the yields of term treasury bonds. "The reduction in deposit rates by major banks aligns with policy direction and their own needs to stabilize interest margins. Subsequently, all types of banks will follow suit. Additionally, according to the plan to reduce existing mortgage rates, the adjustment should be largely completed by the end of the month. This is also a catalytic factor for the recent intensive reduction in deposit rates by commercial banks." Wang Qing, chief macro analyst at Orient Gold Standard, previously analyzed that the reduction in existing mortgage rates in this round would lead to a reduction in banks' annual interest income of around 100 billion yuan; by the end of the month, the total scale of various deposits in banks was approximately 250 trillion yuan, meaning that an average reduction of 10 basis points in deposit rates would suffice to compensate; if the quoted rate for the month is reduced by 10 basis points, and this leads to a more significant reduction in various loan rates, in order to stabilize net interest margins, deposit rates would need to be further reduced by an average of around 15 basis points.

This also means that the current round of bank deposit interest rate cuts can basically offset the impact of various loan interest rate cuts on net interest margins. However, Wang Qing also emphasized that before the stabilization of the real estate market, there is room for cuts in various market interest rates, including deposit and loan rates.

Following the usual path of deposit rate cuts, after the state-owned banks take the lead in lowering deposit rates, joint-stock banks quickly initiate deposit rate cuts, while small and medium-sized banks follow in stages based on their own circumstances. In contrast, small and medium-sized banks, considering factors such as the pressure to attract deposits, often have weaker adjustment momentum and slower pace. As of now, many small and medium-sized banks are still "catching up" with previous rounds of adjustments.