- 2024-09-27
- News
Bank deposit interest rates have been lowered six times
Professional institutions analyze that the current reduction in the interest rates of existing housing loans will lead to a decrease in banks' annual interest income of about 150 billion yuan. Banks then initiate a new round of deposit interest rate cuts, which is of great significance for stabilizing the interest spread, ensuring the stable operation of commercial banks, and increasing the support for financing the real economy.
On October 18th, the new round of deposit interest rate cuts, less than three months after the last adjustment (which began on July 25th), marked the sixth time since September 2022 that state-owned major banks have proactively lowered deposit interest rates.
The official website of the Industrial and Commercial Bank of China shows that the listed interest rates for 3-month, 6-month, 1-year, 2-year, 3-year, and 5-year fixed deposits have all been reduced by 25 basis points (BP) to 0.80%, 1.00%, 1.10%, 1.20%, 1.50%, and 1.55%, respectively.
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The China Construction Bank and several other major banks have reduced their deposit interest rates by roughly the same margin. Its mobile banking shows that the interest rate for demand deposits has been reduced by 5 basis points to 0.1%; the interest rates for 3-month, 6-month, 1-year, 3-year, and 5-year fixed deposits have all been reduced by 25 basis points, respectively to 0.80%, 1.00%, 1.10%, 1.20%, 1.50%, and 1.55%; the interest rate for 7-day notice deposits has also been reduced by 25 basis points to 0.45%.
Unlike other banks, the Postal Savings Bank of China has a 1-year deposit interest rate of 1.13%, which is 3 basis points higher than other state-owned major banks, while the interest rates for other term deposit products remain consistent.
"On September 27th, the reserve requirement ratio was reduced by 0.5 percentage points, and it is expected that before the end of the year, depending on the market liquidity situation, the reserve requirement ratio will be further reduced by 0.25 to 0.5 percentage points; the interest rate for 7-day reverse repurchase operations in the open market will be reduced by 0.2 percentage points; the medium-term lending facility interest rate will decrease by 0.3 percentage points. This morning, commercial banks have announced a reduction in deposit interest rates, and it is expected that the Loan Prime Rate (LPR) announced on the 21st will also decrease by 0.2 to 0.25 percentage points." On October 18th, the Governor of the People's Bank of China, Pan Gongsheng, delivered a speech at the opening ceremony of the 2024 Financial Street Forum Annual Conference.
The change in bank deposit interest rates this time is related to the reduction in the interest rates of existing housing loans. On October 17th, the Deputy Governor of the People's Bank of China, Tao Ling, stated at a press conference held by the State Council Information Office that it is expected that most of the existing housing loans will be batch-reduced on October 25th, which means that everyone can check the adjustment results through the designated channels of the loan banks on October 26th. Some small and medium-sized banks will take a slightly longer time to adjust, but overall, it will be completed by October 31st.
Oriental Jincheng estimates that the current reduction in the interest rates of existing housing loans will lead to a decrease in banks' annual interest income of about 150 billion yuan; at the end of September, the scale of various types of bank deposits was about 299 trillion yuan, which means that an average reduction of 5 basis points in deposit interest rates can make up for it; if the LPR (Loan Prime Rate) in October is reduced by 20 basis points, and leads to a larger reduction in various loan interest rates, focusing on stabilizing the net interest spread, deposit interest rates need to be reduced by an average of 10 to 15 basis points.
"In this way, the current round of deposit interest rate cuts initiated by banks is of great significance for stabilizing the interest spread, thereby ensuring the stable operation of commercial banks, and continuously increasing the support for financing the real economy." said Wang Qing, the Chief Macro Analyst of Oriental Jincheng.Regarding the deposit interest rates of small and medium-sized banks, they often follow the reduction of state-owned large banks and are currently in the fifth round of reduction. In early October, many small and medium-sized banks in Shanxi, Guizhou, Xinjiang, Guangxi, and other places intensively issued announcements to reduce the types of deposits involved, with a reduction range of 5 to 50 basis points, and some banks' reduction exceeded 100 basis points.
From 2021 to 2023, the net interest margin of Chinese commercial banks decreased by 39 basis points over three years, from 2.08% in 2021 to 1.69% in 2023, among which the net interest margin in 2023 decreased by 22 basis points compared to the previous year.
"The net interest margin of the commercial banking industry will decrease by 20 to 25 basis points throughout 2024." S&P forecasted in July 2024.
The latest data shows that the net interest margin of the banking industry in the second quarter of 2024 is 1.54%, unchanged from the previous quarter, the lowest on record, and significantly lower than the 1.8% warning level.
In the process of reducing the bank's liability cost by lowering deposit interest rates, how to stabilize the deposit base is a problem that banks need to face, and it is necessary to judge the scale and rhythm of the potential "deposit migration."
Wang Qing believes that banks currently need to better manage the liability side, with the core being to predict interest rate trends and make policy adjustments in advance. Among them, a very important aspect is to optimize the deposit structure, increase the proportion of demand deposits, especially core deposits that are not sensitive to interest rates, moderately reduce the proportion of high-cost deposits, and reduce the liability cost while stabilizing the liability side.
"Looking forward, before the real estate market stops falling and stabilizes, there is room for reduction in various market interest rates, including deposit and loan interest rates." Wang Qing said.
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