Title: Some Banks Lower Deposit Rates, Aiming to Reduce Financing Costs for the Real Economy
Date: [Date]
In recent news, market attention has been drawn to the decision of several banks to lower their deposit rates. Upon investigation, a reporter from “Securities Daily” determined that the current time deposit interest rates in some bank outlets in the Beijing area have decreased compared to the previous month, with reductions ranging between 5 and 10 basis points.
Industry insiders have explained that the deposit interest rate is largely anchored to the 1-year LPR interest rate and the 10-year treasury bond yield. As both the 1-year LPR interest rate and the 10-year treasury bond yield experienced significant drops this month, a new round of deposit rate reductions may be expected. This adjustment is expected to ease pressure on banks to narrow their net interest margins, thereby reducing financing costs for the real economy.
A financial manager interviewed by the reporter shared that the interest rates for 6-month, 2-year, and 3-year time deposits have decreased slightly compared to last month, with declines ranging between 5 and 10 basis points. However, the interest rates for other term deposits have remained unchanged. Currently, a 2-year fixed deposit with a minimum deposit of 10,000 yuan offers an interest rate of 2.6%, while a 3-year fixed deposit with a minimum deposit of 50,000 yuan offers 3.15% interest.
Contacting various banks for inquiries about deposit interest rates, the reporter discovered that most banks have not yet adjusted their fixed deposit interest rates. Managers from multiple state-owned banks stated that the current interest rates remain unaltered. For instance, the interest rates for 1-year, 2-year, and 3-year time deposits offered by a bank starting at a 10,000 yuan deposit stand at 1.9%, 2.3%, and 2.85%, respectively.
Wealth management managers from several banks shared their expectations of further decreases in deposit interest rates. They believe that deposit interest rates are currently on a downward trajectory and are likely to continue declining in the future. A financial manager from a large state-owned bank revealed that their bank has not yet adjusted prices, but they anticipate potential reductions in the future.
Wang Qing, chief macro analyst at Dongfang Jincheng, explained to the Securities Daily that the market-based adjustment mechanism for deposit rates is influenced by the 10-year treasury bond yield, the bond market interest rate, and the 1-year LPR quotation representing the loan market interest rate. With the continuous decline in the 1-year LPR quotation and the recent decrease in the 10-year treasury bond yield, alongside the current low price level, conditions are ripe for a new round of deposit rate cuts.
Du Yang, a postdoctoral fellow at the Bank of China Research Institute, identified the primary motivation for some banks to lower deposit rates as a means to reduce liabilities and ensure continuous financial services to the real economy.
Data disclosed by the State Administration of Financial Supervision shows that as of the end of the first half of 2023, the net interest margin of commercial banks remained at 1.74%, the same figure as in the first quarter. Although the downward trend of interest margin has eased, it remains relatively low. On August 21, the People’s Bank of China authorized the National Interbank Funding Center to announce the latest loan market quotation rate, revealing a 10 basis point reduction in the one-year LPR to 3.45%.
Du Yang emphasized that some banks still face pressure in managing interest rate spreads. Lowering the deposit rate can increase interest income levels and provide room for reducing rates on the asset side, thus boosting the economic capacity of service entities. This measure is also beneficial for moderately reducing residents’ deposits and stimulating market consumption. Flexibly adjusting deposit interest rates according to market conditions and operational needs is an important aspect of fully releasing the effectiveness of market-oriented deposit interest rate reforms.
As for whether other financial institutions will follow suit and lower deposit rates, Xue Hongyan, deputy director of the Xingtu Financial Research Institute, expressed to Securities Daily that banks lack the motivation to attract high interest rates due to the historical low interest rate spread in the banking industry. Furthermore, reducing interest rates on existing mortgages adds further pressure at the industry level. Consequently, big banks are likely to collectively lower their deposit listing interest rates, with smaller banks following suit.
In conclusion, the decision of some banks to lower their deposit rates signals their aim to reduce financing costs for the real economy. Various factors such as declining 1-year LPR quotations and the 10-year treasury bond yield have created a favorable environment for deposit rate cuts. Banks’ flexibility in adjusting deposit interest rates based on market conditions and operational needs is an essential aspect of market-oriented reforms. Nonetheless, individuals and entities are advised to proceed at their own risk and seek appropriate financial advice.
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