China’s regional and rural commercial banks have joined the latest wave of deposit rate cuts initiated by state-owned and joint-stock banks, pushing many offerings into sub-2% territory. The move comes as financial institutions nationwide adjust to monetary policy shifts and changing market conditions.
Widespread Rate Adjustments Across Banking Sector
Beijing Bank recently updated its rates, with current account deposits now yielding just 0.05% and three-year/five-year fixed deposits reduced to 1.30%/1.35% respectively – a 25 basis point (bp) cut. Similar adjustments have been implemented by Shanghai Bank, Ningbo Bank, and Nanjing Bank, typically mirroring the 15-25bp reductions seen at larger institutions.
The trend extends beyond city commercial banks, with rural commercial banks and even foreign institutions like Mitsubishi UFJ Bank (China) announcing cuts ranging from 5-30bp. Notably, many banks have simultaneously withdrawn previously popular high-yield products like large-denomination certificates of deposit (CDs).
Differing Approaches Among Institutions
While most banks followed the standard adjustment pattern, some like Changsha Bank implemented steeper cuts of up to 30bp for longer-term products. Analysts note that variations reflect differences in market positioning, customer bases, and liability structures across institutions.
Wen Bin, Chief Economist at China Minsheng Bank, explains: “The rate reductions aim to reduce economic entities’ savings inclination, channeling more funds into consumption and investment while alleviating banks’ liability-side pressures.”
Deposit Migration Accelerates
As rates hit historic lows, wealth managers report increasing client shifts to higher-yielding alternatives:
- Bank wealth management products seeing significant inflows
- Savings-type insurance products experiencing surging sales
- Retail investors turning to low-risk public funds
“Multiple clients with seven-figure deposits have redirected funds to short-term wealth products after seeing the new rates,” revealed a relationship manager at a joint-stock bank in eastern China. Industry data confirms the trend, with top 14 wealth management firms collectively growing AUM by 1.89 trillion yuan in April alone.
Changing Investor Behavior
Xue Hongyan, researcher at SuShang Bank, observes: “With one-year rates below 1%, deposits’ value preservation function weakens, making investors more sensitive to returns and accelerating asset reallocation.” Younger investors are particularly active, with Ant Group data showing 937,000 post-90s investors allocating to money market, bond, and gold funds.
Banking Sector Faces Liability Challenges
The deposit exodus is reshaping banks’ liability management strategies:
- Increased reliance on interbank liabilities
- Higher interbank CD issuance rates (up 5-6bp in May)
- Growing focus on wealth management capabilities
Wang Jian’s team at Guosen Securities notes: “The rate cuts are forcing banks to accelerate balance sheet transformation, strengthening wealth offerings and payment ecosystems while optimizing interbank funding tools.”
Market Liquidity Concerns
Analysts warn of potential liquidity pressures as financial disintermediation coincides with:
- 4.16 trillion yuan in June CD maturities
- Peak government bond supply
- Ongoing deposit migration
Yang Jiefeng of Southwest Securities emphasizes: “The stability of large banks’ liability sides warrants close monitoring as these factors may create market volatility.”
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