Another wave of interest rate cuts is sweeping through the banking sector. Following the collective reduction of listed deposit interest rates by the six major state-owned banks and joint-stock banks, numerous city and rural commercial banks, as well as village and town banks across the country, have also recently taken action, successively announcing reductions in deposit interest rates.
The five-year fixed deposit interest rates of several banks have dropped below 1.3%. On May 30th, Guangdong Qingxin Rural Commercial Bank issued an announcement stating that it would adjust the listed interest rate for RMB deposits as of that day. The interest rate for five-year fixed deposit and withdrawal was reduced to 1.25%. On the same day, Guangzhou Huadu Chouzhou Rural Commercial Bank also announced that starting from June 5th, the interest rates for half-year, one-year, two-year, three-year, and five-year fixed deposit and withdrawal periods would be 1.20%, 1.60%, 1.40%, 1.75%, and 1.20% respectively. After the adjustment, the five-year fixed deposit interest rate of Guangzhou Huadu Chouzhou Rural Commercial Bank is 55 basis points lower than the three-year rate and 10 basis points lower than the listed interest rate of the same term and type of deposit of major banks. This pricing is also significantly lower than its own one-year fixed deposit interest rate of 1.6%.
According to incomplete statistics, dozens of rural commercial banks, village and town banks, and rural credit cooperatives have recently announced cuts in deposit interest rates, with relevant announcements being made every day. Among them, the deposit interest rates of joint-stock banks were generally reduced by 10 to 40 basis points. In village and town banks, the three-year and five-year fixed deposit interest rates of some institutions dropped sharply by 80 basis points. For example, the three-year interest rate of village and town banks in the central region has been directly reduced from 3.2% to 2.4%.
The adjustment pace of deposit interest rates in small and medium-sized banks is similar to that of large state-owned banks: the listed deposit interest rates are cut asymmetrically, and the long-term interest rates are reduced by a relatively large margin. In the eyes of industry insiders, the reduction of deposit interest rates by regional small and medium-sized banks is aimed at following the previous pace of interest rate cuts by major state-owned banks and joint-stock banks.
On May 20th, the six major state-owned banks, namely Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China, as well as China Merchants Bank, led the reduction of deposit interest rates. Demand deposits were reduced by 5 basis points, time deposits by 15 to 25 basis points, and the reduction in three-year and five-year deposits was even greater. After this adjustment is completed, the interest rate for current deposits is close to zero, and the one-year fixed deposit interest rate has dropped below 1%. The deposit interest rate has fully entered the “1%” era.
After the major state-owned banks took the lead, national joint-stock banks promptly followed suit. Eleven joint-stock banks, including Bohai Bank and Hengfeng Bank, had already issued interest rate adjustment announcements before May 22. An industry insider analyzed that the domestic market generally adopts a “tiered” follow-up approach to lower deposit interest rates to ensure the stability and order of the deposit market. That is to say, in accordance with the usual practice of interest rate cuts in the banking industry, it is usually the large state-owned banks that take the lead, followed by small and medium-sized banks in a stepwise manner. Moreover, the extent of the decline for small and medium-sized banks is often greater than that for state-owned banks. This time, the joint interest rate cut by regional banks in many places is probably a continuation of the reduction in commercial bank deposit interest rates.
Public data shows that the urgent actions of small and medium-sized banks have their actual pressures. In the first quarter of 2025, the net interest margin of commercial banks was recorded at 1.43%, down 9 basis points from the end of 2024. Although the narrowing rate of the net interest margin in the banking industry has slowed down somewhat, there is still certain pressure, especially for small and medium-sized banks mainly consisting of rural commercial banks.
Wang Xianshuang, the chief analyst of the banking industry at China Merchants Securities, believes that for banks, the reduction in the listed deposit interest rate can help offset the pressure of narrowing interest spreads brought about by interest rate cuts and protect their profitability. However, it is also necessary to pay attention to the possible pressure of deposit migration in the short term. After the interest rate cut, the
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