“Rate Cut” Wave Coming?

Recently, multiple small and medium-sized banks in Guangdong, Henan, and Hubei have announced adjustments to their deposit interest rates.

Southern Bank has lowered its one-year deposit rate from 0.385% to 0.3%, while its three-year and five-year deposit rates have been adjusted by 0.02-0.15 percentage points, respectively. This is the first time the bank has made a deposit interest rate adjustment since November 4, 2017.

Guangzhou Bank also adjusted its regular deposit rates on April 1, with three-year and five-year (above RMB 50,000) products seeing a 0.05 percentage point decrease.

Zhenghai Rural Commercial Bank will lower its one-, two-, three-, and five-year deposit interest rates by 0.05-0.15 percentage points on April 1.

Outside of Guangdong, multiple banks in Henan and Hubei have also adjusted their deposit interest rates since April.

On April 8, several banks in Henan, including Huai'an Rural Commercial Bank and Wudang County Agricultural Cooperative Bank, announced that they would lower their one-, two-, and three-year regular deposit interest rates to 1.9%, 2.4%, and 2.85%, respectively, while maintaining unchanged rates for other term deposits.

Is a new wave of rate cuts coming?

The entire small and medium-sized banking industry has a sense of impending storm.

Why are rates being cut?

Some small and medium-sized banks have raised deposit interest rates before the Spring Festival in 2023 to attract deposits. This time, they may be returning to their original levels after increasing them earlier.

This is mainly due to small and medium-sized banks in Henan province.

The more important reason is that the net interest margin pressure on banks has increased significantly, making it necessary for them to cut rates. This round of rate cuts also seems to be concentrated among small and medium-sized banks.

Among the 23 listed banks that have released their 2022 annual reports, over 20 banks saw a decline in net interest margin and net interest income compared to 2021.

The reasons for the decline can be analyzed from both asset and liability sides.

Firstly, let's look at the asset side: last year, LPR was repeatedly adjusted downward, and loan yields continued to decline. Individual and corporate borrowers' demand for loans also weakened compared to previous years.

Secondly, let's look at the liability side: customers' preference for deposits has undergone significant changes, with a large increase in deposits, extended deposit term structures, and a high proportion of fixed-term deposits. Residents have shown a trend towards regularizing and lengthening their savings, which has led to an increase in banks' payment rates and a rise in costs.

Faced with the shrinking interest margin, some major banks have candidly admitted that "pressing down on payment costs is this year's top priority," aiming to achieve this through budgeting, performance evaluations, and other means.

According to data from 2022 annual reports, the banking industry saw a surge in deposit growth, with agricultural banks' deposits for public customers and individual customers setting new highs.

The issue of "residents' savings deposits growing too fast" has also driven banks to adjust their deposit interest rates based on their own operating conditions.

In fact, domestic commercial banks had previously adjusted their deposit interest rates twice last year: once in April and again in September. At that time, regulatory bodies encouraged small and medium-sized banks to adjust their regular deposit rates downward by about 10 basis points, while some major state-owned banks, most listed banks, and certain rural commercial banks voluntarily lowered their deposit interest rates.

In the current market where interest rates are generally declining, lowering bank deposit interest rates can also help stabilize banks' debt costs and promote further declines in actual lending rates, thereby supporting economic development.

In a low-interest-rate era, it's becoming increasingly difficult to achieve "preservation and appreciation" through banking.

Take Japan as an example: after entering the negative interest rate era, you can even earn negative interest on your bank deposits. The same goes for purchasing money market funds, which is also a similar principle – you have to pay to invest.

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