Minsheng Bank announced that it will stop the automatic purchase and automatic renewal services for the "Flexible Savings" and "Li Duo Duo" products from June 13th, and this business will be completely removed after the expiration of current stock products. Experts believe that in recent years, the trend of deposit becoming more and more fixed-term has intensified, and banks urgently need to adjust long-term, high-interest deposit products to relieve the pressure on the liability side, and there is still a need to lower the listed deposit interest rates in the future.
On June 5th, Cailian Press (reporter Shi Sitong) reported that just under a month after discontinuing sales of large-denomination certificates of deposit for half a year or more, Minsheng Bank announced that it would once again stop automatic purchase and renewal services for its "Suixincun" and "Liduoduo" products.
It is noteworthy that as early as December 2022, the above two businesses had stopped new contracts. This time, stopping the automatic purchase and renewal services means that after the existing products expire, Minsheng Bank's "Suixincun" and "Liduoduo" businesses will be completely withdrawn.
In the opinion of industry insiders, the trend towards fixed-term depositization of deposits has intensified in recent years. The downward adjustment of the listed interest rate has limited impact on lowering the cost of deposits. Banks have to adjust long-term and high-interest rate deposit products on the liability side to reduce the cost of liabilities and relieve interest margin pressure. The proportion of bank fixed-term deposits continues to be high, and there is a certain imbalance in the deposit market. To stabilize the net interest margin, it is still necessary to lower the listed interest rate of deposits.
"Suixincun" and "Liduoduo" will be completely withdrawn by stopping automatic purchase and renewal services.
Specifically, Minsheng Bank announced that due to business policy adjustments, the bank will stop automatic purchase services for Suixincun and Liduoduo starting June 13, as well as the automatic renewal services after they expire. By then, the funds already in Suixincun and Liduoduo accounts can be held until the nearest expiration date, and when the holding period expires, the interest will be settled and transferred to a current settlement account.
Cailian Press learned from the bank's customer service that both Suixincun and Liduoduo are featured time deposit products offered by Minsheng Bank's direct sales bank. Compared with ordinary fixed-term deposit products, Suixincun and Liduoduo can be withdrawn at any time and can also be automatically purchased and renewed, helping depositors reduce their cost of fund management.
Taking Suixincun as an example, after signing up, an open RMB cash management-type smart value-added service product is automatically generated in the customer's account as long as the current deposit in the electronic account reaches the minimum amount of 50 yuan. The generated Suixincun account has a one-year term and can be withdrawn in full or in part at any time during this period. Early withdrawals are calculated based on the current interest rate.
However, as deposit rates have continued to decline in recent years, these Minsheng Bank businesses have also undergone multiple adjustments. For example, Suixincun was divided by March 18, 2022, with funds that had already accrued interest still receiving interest at a rate of 2.25%, while new funds deposited thereafter were calculated based on the listed interest rate for the same term and expiry date.
Then on December 2, 2022, the bank officially stopped signing up for new Suixincun and Liduoduo businesses. At that time, existing customers could still continue to hold their products and enjoy automatic purchase and renewal services. With this announcement, starting June 13, 2024, the automatic purchase and renewal services for Suixincun and Liduoduo products will be discontinued, meaning that these businesses will be completely withdrawn once their existing products expire.
"Minsheng Bank's withdrawal of this product meets specific regulatory requirements, maintains the normal competitive order of the deposit market, and is also helpful in easing interest rate margin pressure." Zhou Maohua, a macro researcher in the financial market department of China Everbright Bank, told Cailian Press. Compared to ordinary fixed deposits, these featured deposit products are both convenient for temporary withdrawal of current deposits, and can also earn relatively high returns from fixed deposits. However, these deposit products do not comply with regulatory requirements, are suspected of attracting high-interest deposits, and are not conducive to maintaining the normal competitive order of the deposit market; at the same time, these products may increase the bank's liability cost pressure and liquidity management difficulties.
The deposit market is imbalanced and it is expected that the listed interest rate for deposits will still face downward pressure.
In fact, prior to stopping the automatic purchase and renewal services for Suixincun and Liduoduo businesses, Minsheng Bank had already officially discontinued sales of its large-denomination certificates of deposit for half a year or more due in May. In addition to Minsheng Bank, banks have been using implicit rate cuts by stopping "manual interest rate supplements", suspending the sale of smart notification deposits, long-term large-denomination certificates of deposit, and other methods to slow down interest rate declines since April this year.
In the view of the industry, whether it is smart notification deposits, large-denomination certificates of deposit or the above featured time deposit products being gradually restricted, the logic behind it is that the pressure on the bank's liability side has been highlighted in a low interest rate environment and it urgently needs to lower the cost of liabilities to ease pressure on interest margin declines.
"This adjustment is actually the same as the previous product withdrawals. Long-term fixed-term deposit products will increase the bank's liability costs. In the current situation of pressure on interest margins, the banks may have fewer and fewer 'welfare' products like these." Wang Pengbo, chief analyst of the financial industry at Broadcom Consulting, said that in recent years, supervision of products that enable flexible deposit taking has been gradually tightened in the industry, while the banking industry's net interest margin is under pressure and banks' profits are narrowing, which means they must adjust long-term and high-interest rate deposit products on the liability side to ease the cost of liabilities.
From the performance of interest margins, commercial banks' net interest margins have continued to decline this year. Data shows that in the first quarter of 2024, the net interest margin of commercial banks was 1.54%, a decrease of 14.8bp from the previous year, and a YoY decrease of 20bp, but the rate of decline has slowed down.
According to analyst Tian Weiwei at Guosen Securities, the previous lowering of listed interest rates and the ban on attracting deposits with high yields had limited effect in easing the interest spread. Therefore, it is necessary to lower the lending rate to stabilize the net interest margin. It is analyzed that the policy guidance to lower the lending rate aims to activate deposits, especially with the decline of long-term deposit rates. However, the trend towards fixed-term deposits in recent years has intensified, and as a result, the impact of a lowered listed interest rate on reducing deposit costs is limited. Therefore, it is expected that the deposit listed interest rate will still face downward pressure.
"At present, the proportion of bank fixed-term deposits remains high, leading to a certain imbalance in the deposit market." In the view of Zhou Maohua, it takes time for the deposit market to return to normalcy due to the high proportion of fixed-term deposits. Meanwhile, as banks further benefit the real economy, etc., some banks will still face significant pressure on their net interest margins in the future, and there is still room for the bank deposit rate to be lowered.
At the same time, he also pointed out that the pressure on net interest margins is expected to have reached a bottom and some patience is required for the net interest margin to rise. As the economy maintains a good recovery trend, the deposit market gradually returns to normalcy, real financing gradually resumes, and the overall trend of the financial market warms up, all of which help alleviate the pressure on bank net interest margins.