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Large Chinese banks have halted sales of long-term, high-denomination certificates of deposit as industry margins come under sustained pressure. Meanwhile, smaller and medium-sized lenders are boosting interest rates to attract deposits toward the end of the year.
The market has seen a swift disappearance of five-year large-denomination certificates of deposit, which traditionally serve as a key year-end deposit-gathering tool. Recently, six state-owned banks eliminated all offerings of five-year products, leaving only maturities ranging from six months to three years. Additionally, an inverted yield curve has emerged, with two-year rates surpassing three-year rates at certain banks.
This trend is unexpected given that, historically, the year-end period usually witnesses a surge in issuing large-denomination certificates of deposit to attract deposits. However, this year marks a clear departure, with five-year products notably absent despite the typical seasonal increase.
The suspension of five-year deposits and the inverted yield curve are seen as efforts by banks to stabilize narrowing net interest margins by lowering liability costs, according to a researcher from Postal Savings Bank of China.
Many lenders have already removed long-term deposits from the market, and more products might quietly exit in the coming months. An economist at Citic Securities noted that these adjustments have been ongoing for some time but were previously obscured by legacy deposits that had yet to mature.
Meanwhile, some state-owned banks are now offering large-denomination certificates of deposit with higher minimum thresholds of CNY1 million (approximately USD141,460), while maintaining current interest rates. These moves are interpreted as banks repositioning traditional deposit products to foster customer relationships, according to a chief researcher at CMB-China Unicom Consumption Finance. With yields on deposit and asset management products declining, investors are advised to adjust their return expectations.
Conversely, smaller banks that face year-end funding pressures are raising deposit rates. For example, Shengjing Bank recently increased rates on one-year and three-year lump-sum deposits by 0.1 percentage points, and raised rates on products requiring CNY1 million by 0.2 percentage points, according to a bank manager. Smaller lenders lack the deposit attraction advantages held by larger banks and face greater challenges, explained a researcher.
The ongoing pressure on margins is expected to drive structural adjustments and intensified competition based on deposit products. Since banks differ in market positioning, customer base, and liability structures, their strategies and the extent of rate changes will vary. Overall, it’s anticipated that banks will continue reducing deposit rates to cut funding costs and alleviate pressure on net interest margins.
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