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

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

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

The concentrated rate cuts by small and medium-sized banks are driven by their own debt cost management needs and influenced by macro policy guidance. However, 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 and falling further to below 1.5%, with especially notable decreases.

According to information from Changji National Village and Town Bank, starting April 1, the bank will fully lower the interest rates for corporate and personal fixed deposits across all maturities. The longest-term deposit rates see the largest cuts, with three- and five-year fixed deposit rates decreasing from 2.2% to 1.4%, a drop of 80 basis points, officially entering the “1” range.

Short- and medium-term deposit rates also decline simultaneously, with one- and two-year rates decreasing by 55 basis points to 1.2% and 1.3%, respectively. Short-term rates for three and six months 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 within a short period, with high adjustment frequency.

For example, Jiangsu Pukou Jingfa Village Bank announced three times in about a month that deposit rates would be adjusted: effective March 2, three- and five-year deposit rates for both corporate and personal accounts 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 both corporate and personal accounts 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 all one-year deposit rates were uniformly reduced to 1.5%.

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

Observations show that since March, the adjustments in deposit rates by small and medium-sized banks have two main features:

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

Second, full coverage across all maturities has been achieved. Although some banks have smaller adjustments, deposit rates for call deposits and maturities from 3 months to 5 years have all been slightly lowered by a few basis points. For example, Xinjiang Oasis National Village and Town Bank, 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 by small and medium-sized banks, a few banks have increased deposit rates against the trend. For instance, Xinan Rongxing Village Bank adjusted its RMB deposit rates starting March 23, with personal deposit rates rising slightly from 1.44% to over 1.5%. The bank applies tiered interest rates: for deposits below 50,000 yuan, the rate is 1.5%; for deposits of 50,000 yuan or more, the rate is 1.55%.

Future adjustment space remains a focus

Regarding this widespread rate reduction 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 cuts. The main reasons include: banks’ net interest margins still face downward pressure and need to lower liability costs; the People’s Bank of China promotes low social financing costs through policy guidance; and the real economy’s effective credit demand 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 projected at 1.42%, down from 1.52% at the end of 2024, a significant drop of 10 basis points. Breaking down 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%.

Historically, the narrowing of domestic commercial banks’ net interest margins has mainly resulted from asymmetric rate cuts on both lending and deposit sides, especially due to loan re-pricing and downward loan pricing, which have caused asset yields to decline more than deposit costs. Previously, deposit rate cuts were relatively slow.

In recent years, commercial banks have launched multiple rounds of deposit rate cuts, primarily 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. Additionally, regulatory efforts to curb “manual interest supplementation” have significantly eased deposit cost pressures.

According to KPMG’s 2025 China Banking Industry Survey, the average deposit cost rate for 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 banks’ average deposit cost was 1.76%, down 14 basis points; joint-stock banks’ was 2.03%, down 17 basis points; city commercial banks’ was the highest at 2.25%, but still down 19 basis points from last year; rural commercial banks saw the largest decrease.

Recent financial reports of listed banks for 2025 show that the effect of deposit rate cuts continues. For example, CITIC Bank (601998) reported a corporate deposit cost rate of 1.35% in 2025, down 36 basis points year-on-year; personal deposit cost rate was 1.73%, down 33 basis points from the end of last year.

Analyses from Zhongtai Securities indicate that CITIC Bank’s loan yield in Q4 2025 was 3.53%, down 24 basis points from Q2; 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 more than loan yields.

Currently, the posted interest rate for large state-owned banks’ demand deposits has fallen to 0.05%, approaching zero interest rates. Some small and medium-sized banks’ one-year deposit rates have also dropped below 1%, raising market concerns about whether deposit rates will continue to approach 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, with further narrowing or even inversion of the term spreads.”