Following May’s reserve requirement ratio and interest rate cuts, China’s banking sector has completed a new round of deposit rate reductions, with major commercial banks now offering one-year time deposits below 1%. Regional banks have followed suit, eliminating their previous rate advantages with most one-to-five year deposits also yielding below 2%.
The Securities Daily reports depositors are increasingly shifting funds to wealth management products, money market funds, bond funds, and insurance products like whole life and annuity policies in search of higher returns.
Retail Investors Seek Alternatives Amid Disappointing Returns
“Current deposit rates are shockingly low – three-year terms now pay less than one-year deposits did several years ago,” said Xiao Hua (pseudonym), an office worker exploring low-volatility bank wealth products. “I’m willing to accept some risk for better returns.”
A state-owned bank relationship manager described client migration patterns: “Conservative clients prefer whole life/annuity insurance, moderate-risk clients choose bank wealth products or bond funds, while aggressive investors turn to hybrid or equity funds.”
Insurance Products Emerge as Popular Deposit Substitutes
One joint-stock bank advisor promoted life insurance products as long-term deposit alternatives, noting: “Our current product offers 2.7% annualized yield. Availability is dwindling fast – we expect to sell out by month-end.”
Interbank Market Shows Strain as Banks Adjust Funding Strategies
With deposits constituting banks’ primary liability source, interbank certificate of deposit (NCD) rates have recently edged upward. For example:
Bank of Communications’ 1-year NCD yield rose from 1.67% (May 21) to 1.7% (May 28)
CCB’s 3-month NCD increased from 1.63% to 1.67% during the same period
Wind data shows AAA-rated NCD yields from major banks climbed from 1.64% to 1.69% between May 20-28.
Analysts: Structural Funding Challenges Persist Despite Monetary Easing
“Declining deposit stability and increased reliance on active liabilities, coupled with incomplete monetary policy transmission, continue pressuring bank funding,” said Ming Ming, CITIC Securities’ chief economist.
Huatai Securities’ fixed income team warns further rate cuts may accelerate deposit outflows, forcing banks to rely more heavily on NCDs for liquidity – creating short-term market distortions.
Long-Term Solutions Emerge as Banks Retool Funding Approaches
Ming maintains the deposit rate downtrend remains intact, with banks needing to enhance active liability management through instruments like financial bonds while controlling high-cost deposits.
Listed banks like Bank of Suzhou outlined three-pronged strategies during investor meetings:
- Optimizing active liability management through current account expansion and tiered pricing
- Maximizing low-cost central bank funding opportunities
- Strategic bond/NCD issuance during favorable rate environments
Market Outlook: Short-Term Volatility vs. Long-Term Stabilization
Shenwan Hongyuan’s research team notes: “While NCD refinancing pressures may cause short-term rate fluctuations, banks’ reluctance to aggressively expand liabilities suggests sustained supply pressure is unlikely.”
The industry consensus indicates China’s banking sector must navigate near-term funding turbulence while transitioning toward more sustainable liability structures in the years ahead.
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