Largest Rate Cuts Exceed 30 Basis Points! Mid-Size Banks Trigger Another Deposit Rate Cut Wave

After the Spring Festival, as the surge of the “Opening Red” climax gradually subsides, bank deposit interest rates have once again experienced a wave of adjustments, primarily led by local small and medium-sized banks.

First Financial reporters found that this round of deposit rate cuts mostly range from 5 basis points (BP) to 30 BP, with larger reductions in medium- and long-term products. Interviewees believe that this adjustment is still a partial reduction by small and medium-sized banks in response to the previous nationwide rate cuts by large commercial banks. Considering that these banks have more room to float their actual interest rates and that their deposit-raising behaviors still need regulation, their funding costs remain higher than those of state-owned banks, leaving room for further decreases in the future.

As banks’ net interest margins hit historic lows, the timing of reserve requirement ratio (RRR) cuts and interest rate cuts, as well as whether they will coincide with a new round of deposit rate reductions, are highly anticipated. However, given that large banks’ deposit rates, especially for products under one year, are already quite low, structural reductions are likely to be the mainstream approach moving forward. On March 12, there were reports that interbank deposit rates might see further reductions, which is viewed as an important direction for structurally lowering banks’ funding costs.

Small and medium-sized banks initiate another wave of deposit rate cuts

Since late February, many small and medium-sized banks in Shanghai, Yunnan, Jiangsu, Xinjiang, and other regions have announced reductions in deposit rates, contrasting sharply with some banks before the Spring Festival that raised rates to boost their “Opening Red” performance.

This round of rate adjustments mainly involves larger cuts in medium- and long-term products. On March 6, Xinjiang Bank announced that starting from the 10th, it would adjust its listed RMB deposit rates, with reductions across savings, fixed deposits, negotiated deposits, and notice deposits, with a maximum cut of 15 BP. Among these, savings and fixed deposits of three years or less generally decreased by 10 BP, while five-year fixed deposits decreased by 15 BP. Negotiated deposits and seven-day notice deposits also decreased by 10 BP, with one-day notice deposits down by 5 BP.

Post-adjustment, the bank’s listed savings rate has fallen to 0.05%, the six-month deposit rate to 0.95%, and the listed rates for one-, two-, three-, and five-year fixed deposits are 1.15%, 1.25%, 1.35%, and 1.35%, respectively.

In addition to listed rates, some banks have also lowered their deposit execution rates. On February 28 and March 5, Pukou Jingfa Village Bank in Nanjing announced that from March 2, the interest rates for three- and five-year deposits for institutions and individuals would be reduced from 2.2% to 1.88%, a decrease of 32 BP; from March 9, the one-year deposit rate for individuals was adjusted from 1.85% to 1.65%, and the two-year deposit rate for institutions and individuals from 1.8% to 1.65%.

Yuanjiang Beiyin Village Bank in Yunnan also lowered its five-year fixed deposit rate from 2.2% to 1.9% starting March 1, with three-year fixed deposits decreasing by 20 BP to 1.8%, and the savings rate dropping from 0.2% to 0.06%.

Some banks have more structural features in their rate adjustments across different deposit products. For example, Songjiang Fuming Village Bank in Shanghai adjusted its one-year fixed deposit rate to 1.85% (down 5 BP) starting March 1; on March 10, its seven-day notice deposit rate was adjusted to 1.30%, a decrease of 25 BP. The bank stated that these adjustments were based on changes in the Loan Prime Rate (LPR) and market interest rates, combined with its deposit product structure.

According to incomplete statistics, about ten small and medium-sized banks have collectively or structurally lowered deposit rates since the Spring Festival, mainly local banks and rural financial institutions.

“Mostly partial reductions,” said Dong Ximiao, Chief Economist at Zhaolian and Deputy Director of the Shanghai Financial and Development Laboratory. He noted that the main entities adjusting deposit rates recently are still local small and medium-sized banks, which generally still offer rates above the mainstream levels of state-owned banks. Some of these banks had previously raised rates to boost their “Opening Red” campaigns, so rate cuts are an objective trend. Banks will adjust flexibly based on their own situations.

For example, Shanghai Songjiang Fuming Village Bank had just adjusted its deposit rates on December 25 of last year. Comparing the two, it lowered the three-month and six-month fixed deposit rates by 10 and 20 BP respectively, but increased the two-year and three-year fixed deposit rates by 3 and 5 BP to 1.93% and 1.75%.

Structural rate reductions may become the mainstream

Looking at the post-reduction rate levels, the overall listed deposit rates of small and medium-sized banks still remain above those of large banks, but some banks are further aligning with state-owned banks.

Since the large-scale rate cuts in May last year, the listed savings deposit rates of state-owned banks have fallen to 0.05%, with three-month and six-month fixed deposit rates at 0.65% and 0.85%, and one-year fixed deposits at 0.95%. The rates for two-, three-, and five-year fixed deposits are 1.05%, 1.25%, and 1.3%, respectively.

However, industry insiders believe that in terms of actual interest rates, small and medium-sized banks still have more room to float upward, and some are not yet regulated in their deposit-raising behaviors. Even if listed rates are close, their actual implicit costs of deposits remain higher than those of state-owned banks.

Since last year, besides adjustments to listed rates, the self-discipline upper limit of deposit rates for all commercial banks, including state-owned banks, has been somewhat lowered, narrowing the space for upward adjustments. Meanwhile, some banks have stopped offering interest rate premiums for five-year or even three-year fixed deposits, and large-denomination certificates of deposit are hard to find. Currently, the mainstream rate ceiling for three-year fixed deposits at large banks is 1.55%, with some five-year fixed deposits at the standard rate of 1.3%, and a few special deposit products offering up to 1.6% for five years.

With the government’s work report explicitly stating that this year will continue to implement a moderately loose monetary policy and advocating the “flexible and efficient use of various policy tools such as RRR and interest rate cuts,” along with the central bank’s earlier statement that there is room for rate cuts this year, market expectations for RRR and interest rate reductions remain high. Given that banks’ net interest margins are still under pressure, the market is also watching whether deposit rates will be further lowered to create space for more accommodative monetary policy.

“There is still room for further reductions, but it’s limited,” said Dong Ximiao. He believes that deposit rates are likely to be modestly lowered this year, but the approach will be more flexible. Uniform, across-the-board reductions are becoming less likely. Considering that large banks’ listed rates have already fallen to relatively low levels after previous cuts—especially the one-year fixed deposit rate below 1%—further reductions will be limited.

In this context, more flexible structural adjustments to deposit interest rates are expected to become the main approach. On one hand, banks with higher overall interest and payout rates will more targetedly lower deposit rates; on the other hand, long-term products with higher rates will remain a focus for future rate cuts, Dong Ximiao said.

On March 12, there were reports that following the strengthening of self-discipline management in 2024, interbank deposit rates might see further reductions. Dong Ximiao believes that lowering interbank deposit rates is also part of the structural effort to reduce banks’ funding costs.

Industry experts note that after stricter regulation of interbank pricing, the previously high-priced interbank deposits of nationwide commercial banks, especially state-owned banks, have undergone rectification. Small and medium-sized banks may still lag behind. As the seven-day reverse repo rate in the open market gradually becomes one of the most important benchmark interest rates in the domestic rate-setting system, future interbank deposit rates are expected to be more regulated and anchored to this rate.