Small and medium-sized banks' deposit interest rate adjustments may show a trend of structural differentiation

Since April, many city commercial banks and rural commercial banks, including Jilin Bank, Xiamen Bank, and Fujian Strait Bank, have repeatedly cut their deposit reference (posted) rates in quick succession. The reduction ranges from 5 to 30 basis points, covering multiple mainstream products such as time deposits and notice deposits. The pace of rate cuts has become noticeably faster. Meanwhile, among seven regional banks that have already released their 2025 annual reports, six banks’ deposit cost ratios have entered the “1-something” range. Analysts believe that, with the banking industry’s net interest margin currently at a historical low, adjustments to deposit interest rates may continue to follow a pattern of gradual, modest changes and structural differentiation, and the interest rate “center” will keep drifting downward steadily.

After the “Spring Festival/First-of-Year Strong Start” tide fades, banks begin to manage liability costs

Entering the second quarter, many smaller banks have issued rate adjustment announcements in clusters. Effective April 1, Xiamen Bank reduced the posted reference rates of multiple deposit products. The annualized rates for one-year, three-year, and five-year time deposits were adjusted to 1.2%, 1.4%, and 1.4%, respectively, down by 10, 20, and 20 basis points from before the adjustment. The one-day notice deposit rate was also cut by 5 basis points to 0.65%. Jilin Bank, meanwhile, adjusted its posted reference rate for three-year term deposits under lump-sum deposit schemes, from 1.75% down to 1.70%, a cut of 5 basis points. After the adjustment, the bank’s three-year and five-year time-deposit rates still have a 10-basis-point inversion. Fujian Strait Bank reduced the posted reference rates for agreed deposits and notice deposits. Among them, the rates for one-day and seven-day notice deposits were cut by 10 and 20 basis points respectively, to 0.6% and 0.9%. In addition, Hubei Jingling Rural Commercial Bank, Jilin Hunjiang Rural Commercial Bank, and Huixian Zhijiang Rural Town Bank have also followed suit. In particular, Huixian Zhijiang Rural Town Bank’s one-year deposit rate was reduced by 30 basis points from its earlier highest rate.

Notably, many banks have accelerated the frequency of deposit rate cuts. Jilin Bank’s latest adjustment is only a month after its previous one; Xiamen Bank cut notice deposit rates twice within less than a week; and Nanjing Pukou Jingfa Rural Town Bank has cut time-deposit rates twice since March.

In this regard, Wang Pengbo, chief analyst at Bocom Consulting, pointed out that many smaller banks are lowering deposit interest rates because the “Spring Festival/First-of-Year Strong Start” period has ended. Banks need to refocus on liability-cost management. At this time, choosing to cut deposit interest rates can reduce deposit costs and optimize the liability maturity structure. A retail business负责人 at a city commercial bank in North China also said that during the “Spring Festival/First-of-Year Strong Start” period, some smaller banks raised deposit interest rates in order to boost deposit growth within a short time frame. After the period ends, banks have returned to goals centered on net interest margin management and long-term liability cost optimization.

In fact, this round of adjustments has its own internal logic. Earlier this year, to strive for a “Spring Festival/First-of-Year Strong Start,” many smaller banks had temporarily increased deposit interest rates, and for some three-year products, the rates once rose to above 2%. As the marketing push wrapped up in the first quarter, banks generally shifted their focus back to asset-liability management. Cutting deposit interest rates became an inevitable choice to reduce high-cost liabilities and stabilize net interest margins. Dong Ximiao, chief economist at China United Securities (Joints?), said that for banks to achieve long-term and steady development, the core is to break the strategic path dependence on short-term scale-chasing, and to transform the “Spring Festival/First-of-Year Strong Start” from a short-term marketing “campaign” into a natural starting point for serving customers throughout the year and creating value.

The deposit interest rate “center” will still drift downward steadily

From industry fundamentals, the fundamental drivers behind banks’ deposit rate cuts come from net interest margin pressure. By the end of 2025, commercial banks’ net interest margins were 1.42%, down 11 basis points year over year and still at a historical low. But positive signals have also emerged: net interest margins have remained stable at around 1.42% for three consecutive quarters, with no longer a one-way decline quarter over quarter. The year-over-year decline has also narrowed significantly compared with the previous two years. According to annual reports from listed banks that have already been disclosed, in 2025 the average deposit cost ratio of 22 listed banks fell by a substantial 34 basis points year over year. The decline is much larger than 15 basis points in 2024 and 3.5 basis points in 2023. Many banks’ net interest income turned from negative to positive, and the proportion of revenue showing positive growth has continued to expand.

From the policy perspective, at the first-quarter 2026 meeting of the People’s Bank of China (PBoC) Monetary Policy Committee, it was clearly stated that market-based interest rate pricing self-discipline mechanisms should be leveraged, and the implementation and supervision of interest rate policies should be strengthened to promote the low-running of society’s overall financing costs. This implies that under an appropriately accommodative monetary policy stance, there remains institutional room for market-based adjustments to deposit interest rates.

Regarding the outlook, Wang Pengbo said that going forward, deposit interest rate adjustments will continue to show a pattern of modest gradual steps and structural differentiation. The interest rate “center” will keep moving downward steadily. There is still room for further downward adjustment of long-term deposit interest rates, and banks’ liability structures will gradually tilt toward medium- and short-term maturities. Wang Qing, chief macro analyst at Oriental CTC, believes that in 2026, there will be sizable medium- and long-term deposit maturities coming up for repricing, and deposit interest rates will continue to be lowered, which will help reduce banks’ interest-paying costs and stabilize net interest margins.

A research report team led by Ma Tingting at Guotai Junan Securities stated that, benefiting from a narrowing decline in interest margins and a rebound in fee income, the marginal improvement in the growth rate of listed banks’ performance was seen in 2025. At the earnings conference, Fang Ying, chairman of China CITIC Bank, also disclosed that in 2025 the bank’s control of “high-cost liabilities” became more forceful and more effective. The combined proportion of three-year deposits, structured deposits, and agreed deposits has already fallen to below 32%, and a reasonable liability structure has formed a clear advantage in funding costs. Industry participants expect that as the industry enters a normalized operating stage in the second quarter, more smaller and medium-sized banks will follow with adjustments to their posted deposit reference rates.