In a significant move to manage costs, several of China's largest state-owned commercial banks have withdrawn long-term, high-yield deposit products from their offerings. This strategic shift is a direct response to intense pressure on profitability, as lenders are tasked with supporting the nation's slowing economy.
Key Banks Pull High-Yield Products
Financial giants including the Industrial and Commercial Bank of China (ICBC) and the Agricultural Bank of China (AgBank) have ceased offering five-year, large-denomination certificates of deposit (CDs). According to updates on their mobile banking applications, these banks now only provide shorter-term large-scale CDs, with tenures ranging from six months to three years.
The discontinued five-year products offered attractive interest rates of approximately 2% to 2.1%. In contrast, the shorter-term alternatives now available carry significantly lower rates, generally between 1.2% and 1.8%. This reduction directly lowers the banks' cost of funds.
Driven by Record-Low Profit Margins
The primary driver behind this action is the severe squeeze on bank profitability. Official data reveals that the net interest margin (NIM) for Chinese commercial banks—a crucial measure of lending profitability—was at a historic low of 1.42% at the end of the third quarter. This figure remained unchanged from the previous quarter, highlighting persistent challenges.
Chinese authorities have been urging banks to lower lending rates to stimulate economic activity. By reducing the interest they pay on deposits, banks create much-needed room to cut loan rates for businesses and individuals without further eroding their own margins.
A Wider Trend Across the Banking Sector
This is not an isolated move by large banks. Smaller and regional lenders, which face even more acute margin pressure, have already taken similar steps. For instance, last month, several rural banks in China's Inner Mongolia region and Yunnan province announced they would stop offering five-year fixed-term deposits and also lowered rates on shorter-term products.
The trend of lowering deposit rates has been ongoing. In May, major state banks cut deposit rates following a reduction in benchmark lending rates by authorities, a measure intended to buffer the economy. Despite successive cuts in recent years, household savings in China have continued to grow explosively. This raises concerns about the side effects of lower returns for consumers, who traditionally rely on savings as a primary safety net.
While ICBC and AgBank did not immediately respond to requests for comment on the recent changes, the action clearly signals the banking sector's concerted effort to navigate a period of economic headwinds and compressed profitability.
