Media reports that several major state-owned banks will lower deposit interest rates, with a maximum decrease of 25 basis points, to be announced this Tuesday

Against the backdrop of the banking industry's profits being continuously suppressed by the narrowing net interest margin, a new round of deposit rate adjustments is about to take effect, which will directly impact the wallets of billions of savers and provide crucial support for the profitability of financial institutions.

Significant Reduction: Collective Decline in Various Deposit Product Rates

According to the Securities Times, several major state-owned banks and some joint-stock banks will further lower the listed interest rates for RMB deposits starting from May 20. This is another explicit manifestation of the market-oriented interest rate transmission mechanism following the central bank's interest rate cut.

Internal information from a major state-owned bank in East China indicates that the maximum reduction in deposit rates will be 25 basis points, affecting various product types such as demand deposits, time deposits, and notice deposits. Specific adjustments include:

The listed interest rate for demand deposits will be lowered by 5 basis points to 0.05%.

The interest rates for fixed-term deposits will be reduced by 15 to 25 basis points.

The reduction for deposits with a term of two years or less will be 15 basis points.

The interest rates for three-year and five-year deposits will be lowered by 25 basis points to 1.25% and 1.30%, respectively.

Some agreed deposits and notice deposits will be reduced by 10 to 15 basis points.

Policy Linkage: Market Transmission After Central Bank Rate Cut

This deposit rate adjustment is within market expectations. According to 21st Century Business Herald, a person from a state-owned bank revealed that the news of the upcoming deposit rate cut has already been communicated in the work group, with specific reduction details to be checked in emails on Tuesday morning. Another person from a state-owned bank stated that an announcement regarding the deposit rate cut might be issued tomorrow.

This is a chain reaction following the People's Bank of China's announcement to lower the policy interest rate by 10 basis points. Starting from May 8, the interest rate for the 7-day reverse repurchase operation in the open market has been adjusted from 1.50% to 1.40%.

Pan Gongsheng, Governor of the People's Bank of China, clearly stated at a press conference held by the State Council Information Office that after the policy interest rate is lowered, it will guide commercial banks to correspondingly lower deposit rates through the interest rate self-discipline mechanism. This policy signal is now being realized.

According to the People's Bank of China's "2024 Third Quarter Report on the Implementation of Monetary Policy," adjustments to the policy interest rate will affect money market rates and bond market rates through market-oriented transmission mechanisms, ultimately impacting deposit and loan rates, forming a complete interest rate transmission path.

Profit Defense Battle: Continuous Pressure on Bank Margins

The latest data shows that in the first quarter of this year, the net interest margin of commercial banks has fallen to 1.43%, further narrowing from 1.52% in the previous quarter and significantly below the regulatory acceptable level of 1.8% set by financial regulatory authorities.

In the current interest rate environment, the basic profitability of the banking industry is facing severe challenges. According to data disclosed by the Financial Regulatory Bureau, the continuous decline in net interest margin is becoming a key factor affecting the stable operation of the banking industry. This deposit rate cut is expected to alleviate the pressure on bank margins to some extent.

Market Expectations: LPR Expected to Be Cut in Sync on May 20

On May 20, the People's Bank of China will announce the May LPR (Loan Prime Rate) quotation. Considering that the policy interest rate was lowered on May 8, the market generally expects the LPR to also be cut by 10 basis points in syncThe reduction of the Loan Prime Rate (LPR) in conjunction with the decline in deposit rates will help balance the asset and liability sides of the banking system, providing support for stabilizing bank interest margins, while also benefiting the real economy by lowering corporate financing costs.

For depositors, the new round of deposit rate cuts means that the opportunity cost of holding cash is further reduced, which may drive more funds towards investment channels such as the stock market, bond market, and wealth management products, bringing new liquidity to the capital market.

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