Small and medium – sized banks have recently announced a new round of adjustments to their deposit interest rates. Several rural commercial banks and village and town banks have successively lowered their fixed deposit interest rates. After these adjustments, the lowest five – year fixed deposit rate at some institutions has dropped to 1.2%, falling below the 1.3% rate level of major state – owned banks for the same period. This trend has led to an increasing phenomenon of interest rate inversion, where “depositing for five years is not as good as depositing for one year,” drawing widespread market attention.
Reasons for Adjusting Long – Term Deposit Interest Rates
Yang Haiping, a researcher at the Shanghai Institute of Finance and Law, explained that to ensure liquidity while effectively reducing the cost of deposit interest payments, small and medium – sized banks have chosen to make more significant adjustments to long – term deposit interest rates. By using price levers, these banks aim to guide depositors to choose medium and short – term deposit products, thereby avoiding excessive locking of long – term funds and optimizing their liability structure.
Specific Announcements and Adjustments
On May 30th, Guangdong Qingxin Rural Commercial Bank announced that it would adjust its listed interest rate for RMB deposits, reducing the interest rate for five – year fixed deposit and withdrawal to 1.25%.
On the same day, Guangzhou Huadu Chouzhou Rural Commercial Bank announced that it would adjust its interest rate starting from June 5th, reducing the five – year fixed deposit rate to 1.2%. This rate is 55 basis points lower than the three – year rate, 40 basis points lower than the one – year rate, and even 10 basis points lower than the rate of major state – owned banks for the same term.
Beijing Huairou Rongxing Rural Commercial Bank also followed suit, making adjustments starting from June 1st, uniformly lowering the two – year, three – year, and five – year fixed deposit interest rates to 1.2%.
Comparison with Major State – Owned Banks
In contrast to small and medium – sized banks, major state – owned banks collectively cut deposit interest rates on May 20th. The current demand interest rate was reduced by 5 basis points to 0.05%. The interest rates for fixed – term fixed deposits and withdrawals ranging from three months to two years were all cut by 15 basis points, while the interest rates for three years and five years were both cut by 25 basis points, reaching 1.25% and 1.3% respectively.
Expert Analysis and Future Trends
Tian Lihui, a finance professor at Nankai University, explained that the five – year deposit interest rate of small and medium – sized banks has dropped below that of large state – owned banks due to the combined effect of narrowing net interest margins, maturity mismatch risks, and policy transmission mechanisms. In the current credit market environment, loan interest rates continue to decline, and the interest spreads of small and medium – sized banks have narrowed, forcing them to lower the interest rates of high – cost long – term deposits. Since most loans provided by small and medium – sized banks are short – term, long – term deposits can lead to capital misallocation, prompting these banks to proactively lower long – term interest rates.
Data from the National Financial Supervision and Administration Commission shows that in the first quarter of this year, the net interest margin of commercial banks in China further narrowed to 1.43%, a decrease of 9 basis points compared with the fourth quarter of last year. Under the pressure of net interest margin, small and medium – sized banks actively adjusted long – term deposit interest rates. Tian Lihui noted that the inversion phenomenon is likely to continue in the short term. If interest rates rise in the future, the inversion situation may be alleviated, but small and medium – sized banks are likely to maintain a pricing strategy of “slightly higher short – term interest rates and reduced long – term interest rates” for a long time.
Yang Haiping added that the inversion of deposit interest rates in small and medium – sized banks mainly stems from two factors: First, long – term interest rates usually have greater room for compression. Banks often adjust long – term interest rates first to balance reducing the cost of deposit interest payment and ensuring liquidity. Second, based on the expectation of interest rate cuts, banks actively guide deposit behavior through interest rate pricing, shorten the average maturity time of liabilities, enhance the flexibility of repricing, and lock in low – cost funds in advance.
Recommendations for Small and Medium – Sized Banks
To address these challenges, Tian Lihui suggested the following strategies for small and medium – sized banks:
Differentiated Pricing: Implement tiered interest rates for high – net – worth clients and launch deposit products with regional characteristics.
“Deposit +” Service Innovation: Combine deposit business with wealth management and bind it to consumption scenarios to enhance comprehensive returns.
Digital Transformation: Leverage big data to conduct intelligent deposit transfer service push, build a localized financial ecosystem, and enhance customer stickiness.
Yang Haiping further emphasized the need for small and medium – sized banks to enhance their strategic research capabilities to make their deposit pricing strategies more refined, professional, forward – looking, and flexible. Banks should transform their deposit business concept, promote the transformation of deposit business from fee – driven and cost – driven to settlement – driven and business – driven, utilize financial technology to enhance account activity and increase deposit accumulation. Additionally, banks should focus on the research and development of characteristic deposit products to promote the coordinated development of wealth management business and deposit operation. Finally, banks should fully leverage their business qualification advantages and enhance customer loyalty through service innovation plans and distinctive value – added services.
Related Topics:
