With the release of positive factors such as the reduction of bank deposit rates, industry analysts are bullish that the pressure on banks' net interest margins will ease.
According to Zhituo Finance APP, recently, several banks have lowered the rates for fixed-term deposits, mainly focused on the adjustment of interest rates for three-year and five-year fixed deposits. Industry insiders believe that the recent reductions in medium- and long-term deposit rates by some banks mainly consider controlling liability costs to cope with the pressure of narrowing net interest margins. In the near future, market interest rates will likely continue to decline, and deposit rates may continue to drop.
Recently, many private banks and rural banks have started to cut interest rates.
For example, according to news from Luliang Xingfu Rural Bank's public account, the bank has adjusted the rates for one-year, two-year, and three-year fixed deposits downward by 5 basis points starting from April 22. It is understood that this is the bank's second adjustment in April and the third adjustment this year for deposit rates. After three rounds of adjustments, the interest rates for various deposit products at the bank have all fallen below 2%; the product with the largest adjustment is the five-year fixed deposit, which has dropped by 65 basis points from 2.25% in November last year to 1.60%, creating an 'inversion' with the three-year deposit rate of 1.95%.
Many joint-stock banks have also lowered their deposit rates. Reporters learned that Shanghai Pudong Development Bank recently reduced the rate for three-year fixed deposits. 'Currently, the three-year fixed deposit rate is 2.05%, down by 10 basis points from the previous 2.15%. If the depositor's enterprise cooperates with our bank for payroll services, the depositor can enjoy a rate of 2.1% for the three-year term,' said a staff member from a branch of Shanghai Pudong Development Bank.
CM BANK is experiencing an inversion between the one-year deposit rate and the three-year and five-year deposit rates, with the one-year 'Flexible Deposit' annual interest rate starting from 1,000 yuan at 1.60%, while the three-year and five-year 'Flexible Deposit' annual interest rates starting from 50 yuan are 1.50% and 1.55%, respectively.
Under normal circumstances, the longer the term of bank fixed deposits, the higher the interest rate. Currently, this traditional notion has been broken, with the banking industry frequently showing instances where medium- and short-term deposit rates are higher than long-term deposit rates.
Zhaolian's Chief Researcher Dong Ximiao stated that the reasons for the deposit rate inversion are multifaceted. On one hand, it reflects the banks' assessment of interest rate trends; banks anticipate that deposit rates will continue to decline, actively reducing the absorption of higher-rate medium- and long-term deposits, leading to even lower medium- and long-term deposit rates. On the other hand, some small and medium-sized banks face short-term liquidity pressures and increase short-term deposit rates to attract deposits and ease short-term funding tightness. Additionally, the inversion in deposit rates is also related to intensified competition in the short-term deposit market in recent times.
The net interest margin is an important indicator of a bank's profitability. Data released by the National Financial Supervisory Administration shows that by the end of the fourth quarter of 2024, the net interest margin of commercial banks was 1.52%, down 1 basis point from the third quarter and down 17 basis points from the fourth quarter of 2023. During the performance briefings held by various banks, some management teams expressed that the downward trend in interest margins will continue, but the pace of decline will narrow, and they will stabilize the interest margin through strengthened cost management on the liability side.
Management of Ping An Bank stated that it is expected that the industry's interest margin will slow down in its decline in 2025, and the bank will continue to increase the reduction of funding costs on the liability side; management of China Zheshang Bank indicated that resources should be allocated efficiently, adjusting the operational strategy from "focusing on the asset side" to "focusing on the liability side," while continuously decreasing the deposit interest rate.
However, as positive factors such as the reduction in bank deposit rates are released, industry researchers are bullish that the pressure on bank net interest margins will ease. An Analyst from Changjiang Securities, Ma Xiangyun, recently published a research report stating that the net interest margin of mainstream banks will gradually stabilize in 2025, as there have been multiple rounds of reductions in the posted deposit rates in recent years, and with a large number of fixed-term deposits maturing in 2025, the deposit interest rates will accelerate downward, continuing the downward trend into 2026.
Analysts indicate that bank deposit rates are currently on a downward trend, with further room for decline in the future. On one hand, there is an increasing market expectation for policies like reserve requirement ratio cuts and interest rate reductions; on the other hand, banks will continue to adopt flexible asset-liability allocation strategies to maintain net interest margin levels.
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