Major banks such as Bank of China, Agricultural Bank of China, China Construction Bank, etc., actively reduced deposit interest rates on July 25. How to understand this round of deposit interest rate cuts? The People's Bank of China explained in a Financial Times article on the 25th that adjusting and optimizing deposit interest rates would help stabilize bank liability costs and improve the sustainability of financial services to the real economy. In recent years, banks have provided strong support for the real economy, with significant reductions in loan interest rates. However, on the liability side, due to the clear trend of deposit formalization and long-termization, the effect of deposit interest rate cuts needs to be gradually reflected as the stock deposit is re-priced. Some banks excessively used illegal methods such as manual interest rate supplements to attract deposits, which led to a significant decrease in liability costs than asset revenue reduction. In the first quarter of 2024, the net interest margin of banks was 1.54%, which narrowed to the lowest level in history. In April, regulatory authorities carried out rectification measures for the situation of illegal manual interest rate supplements, which effectively reduced interest payments, achieving a similar effect of lowering deposit interest rates. Many national banks have reported that after the rectification of illegal manual interest rate supplements, their deposit interest rates for June, especially for public deposits, have significantly decreased compared to April, and the net interest margin has slightly rebounded. This time, the bank actively lowered deposit interest rates, and the reduction in medium and long-term deposit interest rates is larger, which is beneficial to further reduce interest payments, alleviate the problem of deposit long-termization, stabilize bank liability costs, and improve the sustainability of financial services to the real economy. It is also conducive to improving bank profitability, increasing bank shareholder equity, and is bullish for corresponding stock valuations.