Small and Medium-Sized Banks Collectively Cut Rates, Maximum Reduction of 30 Basis Points

Since the beginning of 2026, deposit interest rates for small and medium-sized banks have followed a reverse curve, rising first and then falling.

According to 21st Century Business Herald, during the “opening boost” at the start of the year, many small and medium-sized banks temporarily increased fixed deposit rates to capture market share. However, since March, many such banks, mainly rural commercial banks and township banks, have begun lowering their fixed deposit rates. The five-year fixed deposit rate has dropped into the “1” percent range, with only a few institutions like Panjin Bank maintaining rates above 2%.

Notably, some banks have experienced an inverted yield curve, with five-year fixed deposit rates equal to or even lower than three-year rates. For example, Heilongjiang Youyi Rural Commercial Bank’s five-year fixed deposit rate is 1.6%, lower than its three-year rate of 1.75%.

Meanwhile, in this wave of deposit rate cuts, large-denomination certificates of deposit have shown strong “resistance to falling,” with rates remaining roughly the same as at the beginning of the year. Product terms are becoming more short-term, with one-year products generally around 1.4% to 1.45%, and three-year products around 1.8%. However, issuance has slowed compared to earlier in the year.

Has this round of rate reversal exceeded market expectations? Can large-denomination certificates of deposit remain resilient amid the rate cuts? How will the “inverted” rates reshape depositor behavior and bank liability structures? This article combines the latest data and expert opinions to analyze the reasons behind this rate adjustment and its future trends.

Small and Medium Banks’ Rates Rise Then Fall

Since the start of 2026, small and medium-sized banks have exhibited a reverse trend in deposit rates, rising first and then falling.

During the early “opening boost,” many local banks, such as Shanxi Linxian Rural Commercial Bank and Zhejiang Jiashan Rural Commercial Bank, temporarily increased fixed deposit rates by 10 to 20 basis points (0.1% to 0.2%) for certain terms. Many of these banks set time limits for the promotion, for example, Zhejiang Jiashan Rural Commercial Bank specified the promotion period from January 5 to March 31, 2026.

At that time, state-owned and joint-stock banks were shrinking long-term deposits, allowing small and medium-sized banks to gain a competitive edge in deposit gathering.

However, after March, many rural and township banks, including Yunnan Shiping Beiyin Rural Bank and others, began lowering deposit rates across various terms. For example, Yunnan Shiping Beiyin Rural Bank announced reductions for 3-month to 3-year fixed deposits, with 3-month rates dropping from 1.10% to 0.80%, 6-month from 1.30% to 1.10%, 1-year from 1.60% to 1.55%, 2-year from 1.90% to 1.70%, and 3-year from 2.30% to 2.10%, with decreases ranging from 5 to 30 basis points.

Yunnan Shiping Beiyin Rural Bank’s deposit rates as of March 2026 Source: Official WeChat of Yunnan Shiping Beiyin Rural Bank

Other banks like Chiping Hunan Rural Commercial Bank and Liaoning Zhenxing Bank also followed suit. In this round, more banks saw their five-year fixed deposit rates fall below 2%, entering the “1” percent range. For example, Jiangsu Pukou Jingfa Rural Commercial Bank announced that from March 2, the rates for 3- and 5-year fixed deposits for individuals and entities would decrease from 2.2% to 1.88%.

According to multiple sources, the five-year fixed deposit rate for most banks has now entered the “1” percent range, with only a few like Panjin Bank and Nanshi Ping Beiyin Rural Bank maintaining rates above 2%. Panjin Bank’s five-year fixed deposit rate is 2.05%, and Yunnan Shiping Beiyin Rural Bank’s is 2.1%.

In response to this rate cut, Lin Yingqi, Director of Research at CICC and banking analyst, commented that the concentrated and clear pace of rate reductions by rural and township banks, especially for longer-term products, reflects a market-driven adjustment under the pressure of liability costs and net interest margin compression. The five-year rates falling into the “1” percent range is a typical response to these pressures.

Lin Yingqi noted that this rate adjustment was not surprising. “The initial rise during the ‘opening boost’ was a short-term deposit-gathering strategy; the subsequent rapid decline is a return to normal, cost reduction, and aligns with seasonal and market expectations.”

Short-term Inversion Likely to Persist

A particularly noteworthy phenomenon in this rate adjustment is that many banks’ five-year fixed deposit rates are now equal to or even lower than three-year rates, resulting in an “inversion.”

For example, Heilongjiang Youyi Rural Commercial Bank’s three-year rate is 1.75%, while its five-year rate is only 1.6%. Shanghai Huarui Bank’s three-year rate is 2.00%, with the five-year at 1.95%.

Source: Heilongjiang Youyi Rural Commercial Bank official microblog

Before this round of rate cuts, large state-owned banks had already shown similar patterns: China Construction Bank’s three-year fixed deposit rate is up to 1.55%, while its five-year rate is only 1.30%. CITIC Bank’s three- and five-year rates are both 1.30%. The “inversion” phenomenon has now spread from large banks to small and medium-sized banks, raising market concerns: does this indicate that the “inverted” rate structure is becoming the norm?

Lin Yingqi believes this signals that the “inversion” is transitioning from an isolated case to a phased norm. “The core logic is that banks expect interest rates to decline further and are unwilling to lock in high costs for long-term liabilities, actively compressing high-interest, long-term deposits.”

Since 2025, amid multiple reductions in the Loan Prime Rate (LPR) and declining yields on assets, banks have faced increasing pressure to narrow their net interest margins. Data from the National Financial Regulatory Administration shows that at the end of 2025, China’s commercial banks’ average net interest margin was 1.42%. Large banks averaged 1.30%, joint-stock banks 1.56%, city commercial banks 1.37%, and rural commercial banks 1.60%.

To ease this pressure, banks need to manage liabilities actively, reducing high-cost long-term deposits and encouraging customers to choose shorter, cheaper products.

Lin Yingqi further explained that this structural shift will impact both depositors and banks. For depositors, the declining attractiveness of five-year rates will lead them to prefer products with shorter terms, reducing long-term allocations. For banks, it helps lower liability costs, optimize maturity structures, and ease margin compression. “This reflects refined liability management, and the ‘inversion’ of deposit and loan rates is likely to continue in the short term.”

Large-Denomination Certificates of Deposit Show Stronger “Resilience”

In this wave of deposit rate cuts, some products, especially large-denomination certificates of deposit, have demonstrated strong “resistance to falling.”

Rural and township banks are undoubtedly the main issuers of large-denomination CDs. Data shows that their rates in March remained roughly the same as at the beginning of the year. The issuance tends to be more short-term—mostly one- and three-year maturities—with five-year large CDs becoming rare. In terms of rates, one-year products are generally around 1.4% to 1.45%, and three-year products around 1.8%, about 20 basis points higher than comparable products from state-owned banks.

For example, Huainan Tongshang Rural Commercial Bank’s newly issued one-year and three-year large CDs have rates of 1.4% and 1.77%, respectively; Jiangsu Guanyun Rural Commercial Bank’s one-year rate is 1.45%; Hunan Chenxi Rural Bank’s three-year rate is 1.8%. Notably, some institutions still offer rates above 2%, such as Changshun County Rural Credit Cooperative’s three-year CD at 2.15%.

The issuance pace of large CDs has slowed compared to earlier in the year. Data from China Money Network shows that in January 2026, 282 large CDs were issued; in February, 214; and so far in March, only 87. Despite the slowdown, rural and township banks remain the main issuers.

Why can small and medium banks’ large-denomination CDs withstand the rate cuts better? Lin Yingqi identified three reasons: first, large CDs typically have high minimums (usually 200,000 yuan), attracting stable, high-quality core deposits; second, they are often issued with limited quantities and structured terms, allowing banks flexibility in adjusting scale and costs without following the same rate cuts as regular deposits; third, large CDs are more liquid and transferable, with higher customer acceptance, reducing reliance on high interest rates for competitiveness.

Lin Yingqi summarized, “This is a differentiated liability strategy: lowering costs on regular deposits while maintaining higher rates on large CDs to stabilize core funding, balancing cost control and liability stability.”

However, the spread between large CDs and regular fixed deposits is narrowing. For example, Nanjing Bank’s one-year large CD with a 200,000 yuan minimum deposit offers a rate of 1.45%, only slightly above the 1.35% for a regular fixed deposit with a 10,000 yuan minimum. The three-year large CD rate is 1.8%, matching the same-term regular deposit. This indicates that for some customers, the premium advantage of large CDs is diminishing.

Nanjing Bank large CD and fixed deposit rates as of March 2026 Source: Nanjing Bank official microblog