Bank Customers Chase Higher Interest Rates Across Cities: How Long Will It Last?

"During the National Day holiday, I flew directly to Guizhou to deposit money, choosing a three-year deposit product from Guiyang Bank with an interest rate of 3.25%. Next, I will continue to deposit money across cities," Mr. Bai, an office worker from Nanjing, Jiangsu, told the reporter.

However, while depositors are chasing high-interest deposits, the ranks of banks lowering interest rates are continuously expanding. The latest case is that Baishan Hunjiang Hengtai Rural Bank announced on October 8 that starting from now, it will adjust the RMB deposit listed interest rates, with the largest decrease in the 2-year fixed deposit interest rate, which is 15 basis points. In addition, small and medium-sized banks in Shanxi, Xinjiang, Guangxi, Guizhou, and other places have recently issued announcements in succession, announcing a decrease in deposit interest rates, involving a wide range of specific deposit products, with adjustments ranging from 10 to 110 basis points.

At the end of September, the monetary policy combination punch introduced by relevant departments exceeded expectations: commercial banks will adjust the existing housing loan interest rates in batches before October 31, the 7-day reverse repurchase operation interest rate will be reduced by 20 basis points, and the reserve requirement ratio will be reduced by 50 basis points... Industry insiders said that the reduction of existing housing loan interest rates and the loan market报价 interest rate (LPR) will both put pressure on the bank's net interest margin, requiring banks to reduce liability costs to balance.

Advertisement

Deposit interest rates continue to be adjusted down

Many small and medium-sized banks have recently issued deposit interest rate adjustment announcements, announcing that they will reduce RMB deposit interest rates starting from October 1, involving different terms of fixed deposits, zero deposits, and fixed zero deposits.

For example, on October 2, Tacheng Rural Commercial Bank announced that starting from October 1, it will reduce the listed interest rates of some term deposits, with a decrease of 10 or 15 basis points. Among them, the listed interest rates for 1-year and 2-year fixed deposits both decreased by 15 basis points, to 1.7% and 1.8%, respectively, and the listed interest rate for 3-year fixed deposits decreased by 10 basis points to 2.3%.

Changji Rural Commercial Bank will adjust the listed interest rates of RMB deposits starting from October 1. The listed interest rates for 1-year and 2-year fixed deposits of the bank were reduced by 10 and 35 basis points, respectively, to 1.95% and 2.05%; the listed interest rates for 3-year and 5-year fixed deposits were both reduced by 45 basis points, both from the previous 2.70% to 2.25%.

It is worth mentioning that some banks have reduced the deposit interest rate by more than 100 basis points. Fenyang Jiudu Rural Bank will adjust some deposit interest rates starting from October 1. After the adjustment, the interest rates for 1-year, 2-year, and 3-year fixed deposits of the bank are 2.00%, 2.10%, and 2.30%, respectively. Compared with the last deposit interest rate adjustment (last May), the interest rates for the above-mentioned term deposits have decreased by 15, 65, and 110 basis points, respectively.

The reporter noticed that in the past half year, the frequency of many banks reducing deposit interest rates has accelerated. Among them, Nanning Wuming Lijiang Rural Bank announced the adjustment of deposit listed interest rates, which will be implemented on September 21, only one month after the bank's last adjustment of deposit listed interest rates.

Guangxi Wuming Rural Credit Cooperatives also have a similar situation. On September 20, Guangxi Wuming Rural Credit Cooperatives announced the adjustment of RMB deposit listed interest rates. After the adjustment, the listed interest rates for 6-month, 1-year, 2-year, 3-year, and 5-year fixed deposits are 1.7%, 1.8%, 2.1%, 2.6%, and 2.6%, respectively. Compared with the last deposit interest rate adjustment (this August), the listed interest rates for the above-mentioned term deposits have decreased by 5, 25, 25, 20, and 30 basis points, respectively.Industry insiders generally believe that the aforementioned reduction in deposit interest rates by small and medium-sized banks is a follow-up to the previous reduction in deposit interest rates by state-owned large banks. Reporters have combed through and found that since 2023, the five major state-owned banks have collectively reduced their deposit挂牌 interest rates four times, with three reductions in 2023 and one in 2024. Looking at the reduction margins, the reduction margins for 1-year and 2-year deposit挂牌 interest rates have not changed each time, while the reduction margins for 3-year and 5-year deposit挂牌 interest rates have been somewhat reduced.

A "favorite" for low-risk preference individuals

At the end of September, the surge in the transfer of large-amount certificates of deposit (CDs) topped the Weibo hot search list. Some depositors, in order to quickly sell their CDs, would even give up part of the interest, and the transfer area of large-amount CDs frequently saw products with an expected annualized yield exceeding 3% after discounting.

"In the past, it was quite rare to get a large-amount CD with an expected annualized yield of 2.7% after discounting, but I found before the National Day holiday that there were still CDs with one year left to maturity, with an annualized yield of about 3% after discounting, and I decided to buy them," said a depositor from Hubei. Reporters have noticed that currently, the transfer area of large-amount CDs on the Industrial and Commercial Bank of China (ICBC) APP shows that the highest expected annualized yield after discounting for transferable large-amount CDs is 2.706%, with a remaining term of 137 days.

However, for investors with a lower risk preference, deposit products are still their "favorite". Mr. Bai, mentioned earlier, is one of these investors. He told reporters that he will continue to chase high-interest deposits in the future.

Overall, the deposit interest rates of small and medium-sized banks after the reduction are still at a relatively high level. Compared with the "1" interest rates generally implemented for medium and long-term deposits by state-owned large banks and national joint-stock banks, some small and medium-sized banks' three-year fixed deposit interest rates can still reach 2.5%, and even above 3%.

A new round of deposit interest rate reductions is on the way

Currently, the net interest margin of banks is at a low level. Data from the main regulatory indicators of the banking and insurance industry released by the Financial Regulatory Authority in the second quarter of 2024 shows that by the end of the first quarter and the second quarter, the net interest margin of commercial banks in our country was 1.54%, a year-on-year decrease of 20 basis points.

Zhang Xu, the chief fixed-income analyst at Everbright Securities, said that a bank's net interest margin that is too low will restrict the sustainability of financial support for the real economy and provide convenience for capital arbitrage. Both the reduction of existing mortgage interest rates and the LPR will put pressure on the bank's net interest margin, requiring banks to reduce their liability costs to balance. "Deposits are the highest proportion of liabilities for commercial banks, and reducing deposit interest rates is particularly crucial at present," Zhang Xu said.

On September 29, the People's Bank of China (PBOC) guided the market interest rate pricing self-discipline mechanism to issue the "Initiative on Batch Adjustment of Existing Mortgage Interest Rates". According to the statement by PBOC Governor Pan Gongsheng at the press conference held by the State Council Information Office on September 24, this adjustment will guide commercial banks to reduce the existing mortgage interest rates to the level of newly issued mortgage interest rates, with an expected average reduction of 0.5 percentage points. In addition, the PBOC announced on September 27 that it will reduce the 7-day reverse repo operation interest rate by 20 basis points.Dongguan Securities strategy analyst Fei Xiaoping analyzed that the 7-day reverse repo operation interest rate was lowered by 0.2 percentage points, from the current 1.7% to 1.5%, further strengthening the policy interest rate status of the 7-day reverse repo operation interest rate. Under the market-oriented interest rate mechanism, this round of adjustment of the 7-day reverse repo operation interest rate will lead to the adjustment of domestic market benchmark interest rates, and then lead to a reduction of about 0.3 percentage points in the Medium-term Lending Facility (MLF). It is expected that the LPR and deposit interest rates will also decrease by 0.2 to 0.25 percentage points to maintain the stability of commercial banks' net interest margins.

Since the market-oriented reform of deposit interest rates, commercial banks have used various methods to control deposit interest rates and guide the orderly downward movement of bank liability costs from different channels. Zhang Xu believes that the downward trend of deposit interest rates is a high-probability event. Ai Yawen, an analyst at Rong360 Digital Technology Research Institute, said that against the backdrop of commercial banks' net interest margins under pressure and the downward trend of loan interest rates, the reduction of deposit interest rates is still expected in the future.

Ming Ming, the chief economist of CITIC Securities, believes that for banks, the reduction of deposit interest rates is beneficial for controlling interest costs, but it will bring challenges to the stability of the liability side. For the market, the reduction of deposit interest rates may promote the further downward movement of a wide range of interest rates, including government bond interest rates. At the same time, the phenomenon of "moving deposits" may be strengthened, and low-risk asset management products such as bank wealth management are expected to receive incremental funds, thereby enhancing the allocation strength of the bond market.