Multiple small and medium-sized banks intensively cut deposit interest rates, making "interest rate inversion" a common phenomenon.

Ask AI · How Does the Narrowing of Net Interest Margin Drive a Wave of Interest Rate Adjustments at Small and Medium-Sized Banks?

Recently, many small and medium-sized banks have experienced a new round of deposit interest rate adjustments.

Since March, dozens of small and medium-sized banks, including Xinjiang Bank, Yunnan Yuanjiang North Village and Town Bank, Heilongjiang Friendship Rural Commercial Bank, Nanjing Pukou Jingfa Village and Town Bank, among others, have repeatedly lowered their listed deposit rates. For 2-year, 3-year, and 5-year fixed-term deposits, the interest rates have generally fallen below 2%, officially entering the “1” interest rate era.

For example, Xishang Bank announced that starting April 1, it will adjust certain deposit interest rates via its mobile banking platform. The 3-year and 5-year fixed-term deposit rates will both be adjusted to 1.8%, a decrease of 20 basis points from current levels.

Jiangsu Nanjing Pukou Jingfa Village and Town Bank has lowered deposit rates twice since March. On March 9, the bank reduced the 1-year deposit rate from 1.85% to 1.65%, and the 2-year deposit rate from 1.8% to 1.65%. On March 20, it lowered rates again: the 1-year deposit rate dropped to 1.5%, and the 2-year deposit rate to 1.47%.

On March 6, Xinjiang Bank issued an announcement stating that from the 10th, it would adjust its RMB deposit benchmark rates. The rates for demand deposits, fixed deposits, negotiated deposits, and notice deposits were all lowered, with the maximum reduction being 15 basis points. Specifically, interest rates on demand deposits and fixed deposits of 3 years or less were generally reduced by 10 basis points, while the 5-year fixed deposit rate was cut by 15 basis points. Additionally, negotiated deposits and 7-day notice deposits were both reduced by 10 basis points, and the 1-day notice deposit rate was lowered by 5 basis points.

In this round of rate cuts, “interest rate inversion” has become a common phenomenon. Some banks have seen deposit rates across different maturities level off or even invert, with long-term deposit rates falling below short-term rates. For example, after adjustments, Dalian Lvshunkou Mengyin Village and Town Bank’s 3-year fixed deposit rate is 1.80%, higher than the 5-year rate of 1.60%.

Meanwhile, long-term deposit products are accelerating their exit from the market. According to Beijing Business Today, among 19 private banks, 9 cannot find 5-year deposit products on their apps, and some banks have effectively paused new medium- and long-term fixed deposit offerings. The six major state-owned banks have also collectively delisted 5-year large-denomination certificates of deposit as of December 2025.

It is understood that this round of rate cuts is a rational response by the banking industry to the ongoing pressure of narrowing net interest margins. Data from the China Banking and Insurance Regulatory Commission show that as of the end of Q4 2025, the net interest margin of commercial banks was 1.42%, unchanged from Q3, but down sharply by 10 basis points from 1.52% at the end of 2024.

Looking ahead, industry consensus generally believes that the downward trend in deposit interest rates will continue. Citic Securities predicts that in 2026, the decline in banks’ net interest margin will narrow to about 4 basis points, marking the first time since 2022 that the annual interest margin decline is in the low single digits.

Guangfa Securities believes that this year, the net interest margin will continue to decline in an “L” shape, with an expected full-year narrowing of about 15 basis points to 1.36%. The pressure on asset re-pricing remains high, and improvements in deposit costs on the liability side are the “only buffer”; non-interest income has become a key hedge.

CICC states that it expects banks’ interest margins in 2025 to continue narrowing year-over-year by 10–15 basis points, with short-term negative growth in interest income unlikely to reverse soon. Banks with a higher proportion of demand deposits and fewer high-cost deposit products on the liability side will be relatively more resilient.