SCIO briefing on China's financial statistics in H1 2023
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E-mail China.org.cn, July 28, 2023
Market News International:
Recently, many banks have cut deposit rates again. What is the impact of the reduction in deposit rates on households' fixed-term deposits and their medium- and long-term loans? And what is the future trend of these two items? Thank you.
Zou Lan:
Thank you for your questions. In April 2022, under the guidance of the People's Bank of China, members of the interest rate self-regulatory mechanism formed a market-based adjustment mechanism for deposit rates. This mechanism guides banks to adjust deposit interest rates reasonably based on changes in market interest rates. Following this mechanism, banks conducted the first round of independent adjustments to deposit interest rates from September 2022 to April 2023. In recent months, there has been a significant increase in RMB deposits, accompanied by a continuous decline in market interest rates. However, the shift towards fixed-term and long-term deposits has increased the costs of liabilities of the banks, causing a net interest margin narrowing to around 1.7%. In response, state-owned commercial banks and joint-equity commercial banks have proactively lowered certain term deposit rates, according to changes in market supply and demand, interest rate trends, and their own business conditions. This proactive adjustment by banks demonstrates the effectiveness of the market-based adjustment mechanism for deposit rates, signifying that deposit rates are more market based.
After the proactive cut on deposit interest rates by banks, these rates have continued to exhibit a slight downward trend. In June 2023, the weighted average interest rates for demand deposits were recorded at 0.23%, marking a decrease of a 0.09 percentage point year on year. Meanwhile, the weighted average interest rates for time deposits stood at 2.22%, down a 0.12 percentage point year on year. This trend contributes to strengthened control over liability costs, creating favorable conditions for reducing loan interest rates for enterprises and enhancing banks' capability and sustainability to support the real economy. Concurrently, under the coordination of the self-disciplinary mechanism for setting interest rates, all types of banks have orderly adjusted their deposit interest rates. Despite these changes, deposits in banks continue to increase, and their distribution remains largely stable, effectively preserving a sound competitive order.
Next, the PBC will persist in deepening market-based interest rate reforms. It will continue to utilize the critical role of the market-based adjustment mechanism for deposit interest rates, guide the self-disciplinary mechanism for setting interest rates to maintain competitive order in the deposit market, promote stable bank liability costs, and enhance its ability to provide sustained financial support for the real economy. Concurrently, the PBC will encourage commercial banks to facilitate over-the-counter sales and transactions of treasury and local government bonds. They will also provide bilateral quotations to customers selling long-term bonds to ensure the ease of selling off these bonds at any time and increase the range of financial products featuring security, profitability, and liquidity available for choice. Thank you.
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