Small and Medium-sized Banks Lower Deposit Rates

At the beginning of 2024, numerous small and medium-sized banks (dominated by city-based commercial banks, rural commercial banks, and village and township banks) lowered their board deposit rates by 5 – 45 basis points, according to the board rates adjustment announcements released by the banks. Despite the adjustments, the overall interest rates remain generally higher than those of state-owned and joint-stock banks.

Previously at the end of December 2023, six major commercial banks, including the Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of China (BOC), China Construction Bank (CCB), Bank of Communications (BOCOM), and Postal Savings Bank of China (PSBC), had already lowered their board deposit rates. The fixed-term deposit rates for 1-year term, 2-year term, 3-year term, and 5-year term fixed-term were lowered by 10 basis points, 20 basis points, 25 basis points, and 25 basis points, respectively. 12 joint-stock banks followed suit and all have lowered their board deposit rates.

In comparison, the deposit rates of some small and medium-sized banks are significantly higher than those of major state-owned banks. For instance, banks such as Henan Huaibin Rural Commercial Bank, Henan Gushi Rural Commercial Bank, and Guilin National Village Bank have announced recent increases in deposit rates for certain deposit terms. Additionally, some small and medium-sized banks still offer deposit rates for 3-year and 5-year terms that are in the 3 percent range. For example, Guilin National Village Bank adjusted the interest rate for its 3-year fixed-term deposit from 2.75% to 3.3%, which was executed from December 1; the 5-year rate remained at 3.3%.

Du Yang, a researcher at the BOC Research Institute, pointed out that there are two main reasons for the upward adjustment of deposit rates by some small and medium-sized banks. Firstly, these banks have a strong demand for funding on the liability side. By raising deposit rates at the end of the year, some small and medium-sized banks aim to increase their deposit base, laying the foundation for next year’s targeted credit expansion in key areas of the real economy and vulnerable sectors. Secondly, small and medium-sized banks are relatively weak in attracting deposits and have to increase deposit rates to enhance market competitiveness.

Industry insiders analyzed that due to deposits being a primary source of liabilities for banks, there is a possibility that deposit rates may continue to decrease. This action may encourage businesses and residents to expand their investments and consumption, thereby helping to boost domestic demand.