Intensive 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 intensively lowering fixed deposit interest rates, covering 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 declines, with medium- and long-term fixed deposit rates—such as two-year, three-year, and five-year terms—generally falling below “2,” entering the “1” range.

The concentration of rate cuts among small and medium-sized banks is driven by their need to control liability costs and influenced by macro policy guidance. The market remains focused on how much further deposit rates can be lowered in the future.

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, even falling below 1.5%, with notable decreases.

According to information from Changji National Village and Town Bank, starting April 1, the bank will comprehensively lower deposit rates for both corporate and individual fixed deposits across all terms. The largest decrease is in long-term deposits, with three- and five-year fixed deposit rates dropping from 2.2% to 1.4%, an 80 basis point cut, officially entering the “1” range.

Short- and medium-term deposit rates have also declined simultaneously. One-year and two-year rates are down 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 frequent adjustments.

For example, Jiangsu Pukou Jingfa Village Bank announced three rate adjustments within a month: effective March 2, the three- and five-year deposit rates for both corporate and individual accounts were reduced from 2.2% to 1.88%; on March 9, the one-year individual deposit rate was lowered from 1.85% to 1.65%; the two-year deposit rate for both corporate and individual 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, this bank’s three-year fixed deposit rate was still in the “2” range at as high as 2.45%, and the one-year fixed deposit rate was also 2%, indicating a significant decline.

Observations since March show two main features in the deposit rate adjustments among small and medium-sized banks:

First, the magnitude of reductions is large. Some term rates have decreased by 50 to 80 basis points, with three- and five-year deposit rates falling below 1.4%. The gap between one- and two-year rates has narrowed to about 0.2 percentage points, even resulting in inverted yield curves, reflecting 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 terms from 3 months to 5 years have all been slightly lowered by a few basis points. For example, Oasis National Village and Town Bank in Xinjiang, 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 among small and medium-sized banks, a few banks have raised deposit rates against the trend. For instance, Xin’an Rongxing Village Bank adjusted its RMB deposit rates starting March 23, with personal deposit rates increasing 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 room for adjustments remains a focus

Regarding the recent rate cuts 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 reductions. 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 insufficient credit demand, with deposit growth outpacing loans, has led to an asset shortage.

According to data from the State Financial Regulatory Administration, the net interest margin of commercial banks at the end of Q4 2025 is 1.42%, down 10 basis points from 1.52% at the end of 2024. Breaking down by bank type, city commercial banks, rural commercial banks, and private banks have net interest margins of 1.37%, 1.60%, and 3.83%, respectively.

The narrowing of net interest margins in domestic commercial banks has long been due to asymmetric rate cuts on both lending and deposit sides, especially as loan re-pricing and downward loan pricing have caused asset yields to decline faster than deposit costs, which had previously been relatively slow to decrease.

In recent years, banks have launched multiple rounds of deposit rate cuts, mainly 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 decrease 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. Coupled with regulatory crackdowns on “manual interest supplementation,” deposit costs have eased significantly.

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 averaged 2.03%, down 17 basis points; city commercial banks had the highest at 2.25%, but still down 19 basis points from last year; rural banks saw the largest decrease.

Recent financial reports of listed banks for 2025 show continued effects of deposit rate cuts. For example, CITIC Bank’s 2025 corporate deposit cost rate is 1.35%, down 36 basis points year-on-year; personal deposit cost rate is 1.73%, down 33 basis points from the end of last year.

According to analysis by Zhongtai Securities, CITIC Bank’s Q4 2025 loan yield was 3.53%, down 24 basis points from Q2, while 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 decreased more than loan yields.

Currently, the posted rates for demand deposits at large state-owned banks have fallen to 0.05%, approaching zero interest. 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 decline toward zero.

Lou Feipeng believes that the pace of rate reductions will likely be gradual, with small and medium-sized banks possibly experiencing larger cuts. “In the long run, the interest rate center will continue to shift downward, further narrowing the term spreads, and even the inverted curve phenomenon may persist.”