Recently, due to the narrowing interest margin and increasing operational pressure, small and medium-sized banks across China have been lowering deposit rates, with the maximum decrease reaching 40 basis points. However, the trend of Chinese residents shifting towards fixed-term savings accounts continues to intensify, with the proportion of fixed-term deposits to total deposits reaching a new high in 2024.
The interest margin is calculated as (total interest income – total interest expenses) / total interest-earning assets.
According to reports from various media outlets such as the Beijing Business Daily and the Securities Times, since April, banks like Ping An Bank, Liaoshen Bank, Zhongbang Bank, and Xinan Bank have taken measures to lower deposit and large-sum deposit rates.
Ping An Bank announced that starting from April 8th, the interest rate for a certain 3-year deposit product will be reduced from 2.05% to 1.65%, a decrease of 40 basis points.
Liaoshen Bank, as of April 7th, lowered the listed rates for 1-year, 2-year, 3-year, and 5-year fixed-term deposits by 5 basis points, 15 basis points, 15 basis points, and 10 basis points respectively, to 1.95%, 2%, 2.05%, and 2.1%.
Starting from April 4th, Xinan Bank reduced the rates for 2-year and 3-year savings deposit products from 2.8% to 2.65% and 2.6% respectively, marking the third deposit rate cut by the bank within the year.
Zhongbang Bank lowered the rates for 3-year and 5-year large-sum deposit products by 20 and 40 basis points respectively since April 1st, to 2.4% and 2.5%.
Additionally, after the rate adjustments, the rates for 2-year, 3-year, and 5-year fixed deposits at Guangdong Puning Huicheng Village Town Bank are 2.0%, 2.3%, and 2.35% respectively. The rates at Guangxi Xilin Rural Commercial Bank for the same terms are 1.60%, 1.90%, and 1.95%.
Data from the China Banking and Insurance Regulatory Commission shows that the interest margin for private banks in 2024’s four quarters was 4.32%, 4.21%, 4.13%, and 4.11% respectively. With the continuous narrowing of the interest margin, the overall profit of private banks is declining. In 2024, the total profits of 19 private banks amounted to 18.8 billion yuan, with an average profit of less than 1 billion yuan per bank.
Regarding the reasons for the decrease in deposit rates, industry and economic expert Wang Jianhui pointed out that on one hand, the rate reductions are a strategy by banks to proactively adjust their liability costs as the “Lunar New Year promotions” conclude. On the other hand, as small and medium-sized banks have a higher proportion of high-cost deposits, lowering deposit rates is a way to reduce the cost on the liability side and stabilize profits.
Despite the declining deposit rates in banks across China in recent months, financial reports released by A-share listed banks show that the trend of Chinese residents’ shift towards fixed-term deposits remains unchanged.
The Beijing Business Daily believes that in recent years, due to the decrease in residents’ risk preferences and the preference for capital preservation and interest-bearing products such as wealth management and funds offering inadequate returns, coupled with various factors influencing capital flows, the phenomenon of fixed-term deposits remains significant.
As of the end of 2024, the ratio of current deposits to total deposits at Industrial and Commercial Bank of China decreased by 1.25% year-on-year to 33.08%, while the ratio of fixed-term deposits increased by 1.08% to 64.98%.
While Industrial and Commercial Bank of China saw an increase of 1101.81 billion yuan in fixed-term deposits, a year-on-year growth of 5.7%, the growth in current deposits was lower at 171.61 billion yuan, with a year-on-year increase of 1.3%, falling behind the growth rate of fixed-term deposits.
Construction Bank faced a similar situation, with the bank’s fixed-term deposits reaching 15.5 trillion yuan, up by 5.44% year-on-year, and current deposits at 12.18 trillion yuan, up by 1.34% year-on-year.
Furthermore, for China Merchants Bank, the proportion of retail customer’s current deposits decreased by 8.42% year-on-year to 48.32%, while the proportion of fixed-term deposits increased from 20.42% in 2023 to 22.57%. At Zhengzhou Bank, current deposits decreased by 8.18% year-on-year, while fixed-term deposits increased by 38.17%.
According to the People’s Bank of China’s “Survey on Urban Depositors,” in the second quarter of 2024, 61.5% of residents showed a tendency towards “more savings,” an increase of 15.8 percentage points compared to the end of 2019.
Reported by Jiemian News, the proportion of fixed-term deposits to total resident deposits in China has historically remained around 60%, but since 2019, there has been a noticeable increase. People’s Bank of China data shows that in 2024, this ratio was 72.7%, reaching a historical high.
The ratio of resident deposits in fixed-term to current accounts has shifted from the previous “six-four ratio” to the current “seven-three ratio.” Previously, out of every 100 yuan deposited by residents, 40 yuan was in current accounts, whereas now only 30 yuan remains in current accounts.
A report by the Beijing Business Daily on April 7th pointed out that Chinese depositors still have a strong willingness to park funds in long-term deposits, indicating that the trend toward fixed-term deposits remains unchanged, posing challenges for banks in managing their liabilities.