Intense rate cuts! Small and medium-sized banks' long-term deposit rates enter the "1" range

Source: Securities Times Network Author: Holly

Since March, small and medium-sized banks in Xinjiang, Yunnan, Shanghai, and other regions have been rapidly lowering fixed deposit interest rates, covering city commercial banks, rural commercial banks, village banks, and private banks. The reductions range from 5 to 80 basis points.

This adjustment features full-term coverage and some banks showing significant declines, with medium- and long-term fixed deposit rates for two, three, and five years generally falling below “2,” entering the “1” range.

The concentration of rate cuts among small and medium-sized banks is driven by their need to control liability costs and influenced by macro policy guidance. The future room for deposit rate reductions remains a market focus.

Long-term deposit rates enter the “1” range

Currently, some small and medium-sized banks have begun adjusting deposit rates, with long-term fixed deposit rates directly dropping below 2, even falling below 1.5%, with notable decreases.

According to information from Changji National Village and Town Bank, starting April 1, the bank will comprehensively lower deposit rates for both corporate and personal fixed deposits across all terms. The largest decrease is in long-term deposits, with three- and five-year fixed deposit rates dropping from 2.2% to 1.4%, an 80 basis point cut, officially entering the “1” range.

Short- and medium-term deposit rates have also declined simultaneously. One- and two-year rates are down by 55 basis points, to 1.2% and 1.3%, respectively. Short-term three- and six-month rates have fallen below “1,” from previous rates of 1.15% and 1.3% to 0.8% and 0.95%.

Some small and medium-sized banks have repeatedly lowered deposit rates in a short period, with frequent adjustments.

For example, Jinfa Village Bank in Pukou, Nanjing, announced three times in the past month: effective March 2, the three- and five-year deposit rates for units and individuals were reduced from 2.2% to 1.88%; on March 9, the one-year personal deposit rate was lowered from 1.85% to 1.65%; the two-year deposit rate for units and individuals was cut from 1.8% to 1.65%. On March 20, the two-year deposit rate was further lowered from 1.65% to 1.47%, and the one-year deposit rate for both was uniformly reduced to 1.5%.

It is understood that a year ago, this bank’s three-year fixed deposit rate was still in the “2” range at as high as 2.45%, and the one-year fixed deposit rate was also 2%, indicating a significant decline.

The reporter observed that since March, the deposit rate adjustments among small and medium-sized banks show two characteristics:

First, the magnitude of reductions is large. Some term rates have decreased by 50 to 80 basis points, with three- and five-year deposit rates falling below 1.4%, only about 0.2 percentage points higher than one- and two-year rates, even showing inverted yield curves, highlighting banks’ firm stance on lowering high-cost long-term deposits.

Second, full-term coverage is achieved. Although some banks have smaller adjustments, deposit rates for call deposits and terms from 3 months to 5 years have all been slightly lowered by a few basis points. For example, Oasis National Village Bank in Xinjiang, after adjusting deposit rates at the end of last year, again lowered all deposit rates by 5 basis points on March 21.

Notably, amid the widespread rate cuts among small and medium-sized banks, a few banks have raised deposit rates against the trend. For instance, Xin’an Rongxing Village Bank adjusted its RMB deposit rates starting March 23, with personal deposit rates slightly increased from 1.44% to over 1.5%. The bank applies tiered interest for personal deposits: deposits below 50,000 yuan earn 1.5%, while deposits of 50,000 yuan or more earn 1.55%.

Future adjustment space under scrutiny

Regarding the recent rate cuts among small and medium-sized banks and future trends, Lou Feipeng, a researcher at China Postal Savings Bank, told reporters that there is still room for deposit rate reductions. The main reasons include: banks still face downward pressure on net interest margins and need to lower liability costs; the People’s Bank of China promotes low social financing costs through policy guidance; and the real demand for credit in the economy is insufficient, with deposit growth outpacing loans, leading to an asset shortage.

According to data from the State Financial Supervision and Administration, the net interest margin of commercial banks at the end of Q4 2025 is 1.42%, down significantly from 1.52% at the end of 2024, a drop of 10 basis points. By bank type, city commercial banks, rural commercial banks, and private banks have net interest margins of 1.37% and 1.60%, respectively, with private banks at 3.83%.

The narrowing of net interest margins in domestic commercial banks has long been due to asymmetric rate cuts on both lending and deposit sides, especially as loan re-pricing and downward loan pricing have caused asset yields to decline faster than deposit costs, which had previously been relatively slow to decrease.

In recent years, commercial banks have launched multiple rounds of deposit rate cuts, mainly led by state-owned and joint-stock banks, with small and medium-sized banks following suit. Although deposit rates have continued to decline, the pace of decline has lagged behind that of loan rates.

Since 2024, under pressure on interest margins and revenue difficulties, banks have intensified efforts to reduce liability costs. Coupled with regulatory crackdowns on “manual interest supplementation,” the cost pressure on deposits has eased significantly.

According to KPMG’s 2025 China Banking Industry Survey, the average deposit cost rate of listed commercial banks in 2024 was 2.11%, down 18 basis points from the previous year, marking the first decline in recent years. State-owned large banks had an average deposit cost rate of 1.76%, down 14 basis points; joint-stock banks averaged 2.03%, down 17 basis points; city commercial banks had the highest at 2.25%, but still down 19 basis points year-over-year; rural commercial banks saw the largest decrease.

Looking at the recently disclosed 2025 bank earnings reports, the effect of deposit rate cuts continues to show. For example, CITIC Bank’s 2025 corporate deposit cost rate is 1.35%, down 36 basis points year-over-year; personal deposit cost rate is 1.73%, down 33 basis points from the end of last year.

According to analysis by Zhongtai Securities, CITIC Bank’s loan yield in Q4 2025 was 3.53%, down 24 basis points from Q2, while its deposit cost rate was 1.36%, down 27 basis points from Q2. The net interest margin improved by 3 basis points to 2.17%, indicating that the bank’s deposit costs declined faster than loan yields.

Currently, the listing of large state-owned banks’ call deposit rates has fallen to 0.05%, approaching zero interest, and some small and medium-sized banks’ one-year deposit rates have also dropped below 1%. Market attention is increasingly focused on whether deposit rates will continue to trend toward zero.

Lou Feipeng believes that the pace of rate reductions is likely to be gradual, with small and medium-sized banks possibly experiencing larger cuts. “In the long term, the interest rate center will continue to shift downward, further narrowing the term spreads, and even the inverted curve may persist.”