Just now, cut interest rates!
On October 18th, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, Agricultural Bank, Bank of China and Postal Savings Bank respectively issued announcements to lower the deposit interest rate.
The six major banks have updated the deposit listing interest rate. Regular three-month, six-month, one-year, two-year, three-year and five-year periods are all lowered by 25 basis points, which are 0.80%, 1.00%, 1.10%, 1.20%, 1.50% and 1.55% respectively. The interest rate of 7-day call deposit decreased by 25BP to 0.45%, and that of 1-day call deposit decreased by 5BP to 0.10%.
This is the sixth time since September 2022 that the Bank has taken the initiative to lower the deposit interest rate after July, less than three months later.
Stepping into October, a new round of deposit interest rate reduction began-this round of small and medium-sized banks were the first to move. China, a brokerage firm, learned that the first banks to take action were more than ten village banks in Guangdong, Hainan, Henan, Guizhou and Yunnan, among which Qionghai Xingfu Village Bank in Hainan even lowered the three-year and five-year fixed deposit rates by 50 BP and 100 basis points to 2.5% and 2% respectively.
After several small and medium-sized banks have taken action, the big banks have begun to move. This round of the industry’s psychological expectation of the deposit interest rate reduction is considered to be the result of the downward adjustment of the mortgage interest rate of LPR’s downward superimposed stock.
Small and medium-sized banks take the lead.
Since the last round (July 25th) of deposit interest rate adjustment led by state-owned banks, followed by stock banks and city rural commercial banks, a new round of deposit interest rate adjustment began more than two months later (that is, since the beginning of October).
This time, the deposit interest rate has a remarkable feature: unlike the previous big banks, this time small and medium-sized banks took the lead.
According to the information roughly summarized by China, a brokerage firm, since October, more than ten small and medium-sized banks, including Henan Suiping Zhongyuan Village Bank, Guangdong Qingxin Rural Commercial Bank, Qionghai Xingfu Village Bank, Guizhou Duyun Rural Commercial Bank, Xinjiang Korla Fumin Village Bank, Jilin Jingyu Ganfeng Village Bank, Shanghai Qingpu Huijin Village Bank, Shanxi Fenyang Jiudu Village Bank, Xinjiang Changji Rural Commercial Bank, Heilongjiang Helen Huifeng Village Bank, etc., have announced that they will lower the listing interest rates of different kinds of deposits.
Many of these small and medium-sized banks have been downgraded for more than three rounds: Wenchang Xingfu Village Bank in Hainan Province and Suiping Zhongyuan Village Bank in Henan Province were downgraded for the third time this year, and Jilin Jingyu Ganfeng Village Bank cut interest rates for the fourth time this year.
After many small and medium-sized banks have moved first, the big banks began to act.
It is worth mentioning that this is the sixth time that the Bank has lowered the deposit interest rate since September 2022 and the second time this year. On October 18th, Industrial and Commercial Bank of China (601398), China Construction Bank (601939), Bank of Communications (601328), Agricultural Bank (601288), Bank of China (601988) and Postal Savings Bank respectively issued announcements to lower the deposit interest rate.
In fact, the deposit interest rate cut is expected. On September 24th, Pan Gongsheng, governor of the central bank, said at the press conference of the State Council Office that the policy interest rate of the central bank would be lowered. It is expected that after this policy interest rate adjustment, the medium-term lending facility (MLF) interest rate will be lowered by about 0.3 percentage points, and the loan market quotation rate (LPR) and deposit interest rate will also be lowered by 0.2 to 0.25 percentage points.
On September 27th, the central bank announced that the operating interest rate of 7-day reverse repurchase in the open market has been adjusted from the previous 1.7% to 1.5% since that day.
Many banks have long expected.
No matter who leads the downward adjustment and who follows, in fact, banks have basically the same understanding of the necessity of reducing deposit costs.
From the end of 2021 to the end of June 2024, the net interest margin of national commercial banks continued to decline from 2.08% to 1.54%. Since 2022, the downward adjustment of deposit interest rates has been aimed at reducing the debt cost of banks and alleviating the downward spread of interest margins. However, the net interest margin of China’s banking industry is still in a downward range, but the downward steepness of each bank is different.
"In July this year, LPR dropped by 10 BP, and deposits simultaneously cut interest rates. Through this policy of two-way start of assets and liabilities, the net interest margin was stabilized. This round of logic is the same," concluded a big banker.
In fact, many banks have already made predictions at the semi-annual performance conference. "On the debt side, we will simultaneously reduce the RMB listing interest rate and the upper limit of the self-discipline mechanism with other stock banks, and the deposit cost is expected to be further reduced. Therefore, on the whole, the overall interest margin of the Bank will narrow in the second half of the year, but it is expected to be better than the budget target of 1.8% set by us at the beginning of the year, and it is expected to outperform the market, "said the senior management of Industrial Bank (601166) at its semi-annual results conference.
China Merchants Bank executives bluntly stated at the performance conference that the net interest margin remained under pressure and listed three major influencing factors.
The first is the impact of re-pricing. The repricing impact caused by the downward adjustment of LPR and the overall downward adjustment of the interest rate of existing housing loans last year is still being released, and will continue to be affected this year and even for some time to come.
The second is the influence of supply and demand. In terms of loans, the competition among peers for high-quality projects, housing mortgage loans and other assets has led to a decline in prices, which has brought downward pressure on asset returns. The influence of supply and demand is also reflected in the debt side. For example, although the deposit cost has declined due to the interest rate reduction, it is still relatively rigid overall. This is also related to the increasingly fierce competition for deposits in the current market.
The third is the influence of structural factors. The decline in the proportion of retail credit cards and housing mortgage loans leads to the decline in the overall loan yield, while the decline in the proportion of demand in the deposit structure also leads to the rigidity of the overall deposit cost.
It is worth mentioning that Moody’s recently released the report "China Banking-Long-term low interest rates will continue to exert pressure on the profitability of banks", and the relevant views in the report just involve the internal relationship between the cost of deposit funds and the net interest margin.
Moody’s said that the net interest margin of China’s banks will be constrained by low interest rates. Fierce competition and dependence on deposit funds make it difficult for banks in China to maintain net interest margin by rapidly reducing the cost of capital. We expect that the measures taken by China banks to reduce the cost of deposits can only partially offset the impact of the decrease in asset returns with the downward adjustment of policy interest rates. In addition, because low-cost demand deposits are converted into time deposits, it is difficult for banks to significantly reduce their deposit costs.