Summary of Key Points
Recently, several private banks have removed or discontinued their 3-year and 5-year fixed deposit products. This is due to new regulations on loan assistance, which have led to a reduction in their internet lending volumes, affecting their liability side—banks are actively reducing high-cost, long-term deposits. In the future, this trend may spread to city commercial banks and rural banks, but state-owned large banks and joint-stock banks are unlikely to follow suit in the short term; they prefer to use quota controls or inverted interest rates as alternatives to direct product removal.
1. Which private banks have stopped selling medium- and long-term deposits? What measures have they taken?
The majority of these actions have occurred among private banks, with various approaches:
- Beijing Zhongguancun Bank: Temporarily removed 3-year fixed deposits for both individuals and businesses, now only offering 3-month, 6-month, 1-year, and 2-year deposits (with a 2-year interest rate of 1.8%).
- Hunan Sanxiang Bank: Discontinued 5-year fixed deposits at the beginning of May; existing deposits will not be automatically renewed upon maturity, and the 3-year interest rate was reduced from 2.05% to 1.95%.
- Huarui Bank, Xin'an Bank, and Webank: 5-year fixed deposits are no longer available through their apps.
- Yilian Bank: All 2-year, 3-year, and 5-year deposit options are listed as “sold out”.
- Lanhai Bank: Since November last year, all RMB fixed deposits have been “sold out”, with only a few US dollar deposits remaining.
In summary, private banks are either directly removing long-term deposits or lowering interest rates and restricting the amount of these deposits offered, indicating their reluctance to encourage customers to save money for longer periods at higher interest rates.
2. Why do new loan assistance regulations cause banks to remove deposits?
To understand this, it’s important to know what “loan assistance” entails: Private banks, with fewer branches and a smaller customer base, often collaborate with internet platforms like Alipay and WeChat to find borrowers (such as small businesses and individuals for consumer loans). The bank provides the loan, and the platform helps in the process.
However, new regulations implemented last October require banks to only cooperate with platforms on their approved lists. Many private banks that previously worked with such platforms were not included in the new list, resulting in a significant decrease in internet lending volumes. For example, Yilian Bank’s internet consumer loan balance decreased by 8.5 billion yuan and the amount of loans issued by 19 billion yuan compared to the year before.
Loans represent the bank’s “assets” (sources of profit), while deposits are its “liabilities” (costs in the form of interest payments). With fewer assets, banks need to reduce their liabilities; otherwise, holding large amounts of high-interest deposits without corresponding loans would lead to losses. Therefore, they are removing these high-interest long-term deposits to lower their financial burden.
3. Why have long-term deposits become a “burden” for banks?
Long-term deposits (3 years and 5 years) generally offer higher interest rates than short-term ones (e.g., 2% for 3-year deposits compared to 1.8% for 2-year deposits). For banks, the cost of these long-term deposits is higher.
With reduced lending volumes and fewer high-quality loan opportunities, the profit margin (loan interest minus deposit interest) decreases. Keeping a large amount of high-interest long-term deposits would squeeze this profit margin and potentially result in losses. Thus, banks are removing these high-cost deposits to reduce their financial burden.
4. Will this trend spread to other banks?
Analysts predict that it may spread to city commercial banks and rural banks, but state-owned large banks and joint-stock banks are unlikely to follow soon. State-owned banks (such as ICBC and CCB) have many branches and a stable source of deposits from retail customers and salary accounts, so they do not rely on high-interest long-term deposits to attract customers. They may use two methods instead:
- Quota controls: Limiting the number of long-term deposits available each day until they are exhausted.
- Inverted interest rates: Setting lower interest rates for longer terms (e.g., 1.7% for 3-year deposits compared to 1.8% for 2-year deposits), making it less attractive for customers to save for longer periods.
City commercial banks and rural banks, similar to private banks with fewer branches and limited funding sources, may also face similar pressures and potentially remove long-term deposits in the future.
5. How difficult is it for banks to attract deposits now?
In addition to removing long-term deposits, banks are also facing the challenge of customers moving their savings:
- Many 3-year deposits maturing this year may not be renewed as customers prefer shorter-term options with lower interest rates or invest in financial products and funds (given the recent rise in the stock market).
- Bank employees are reporting difficulties attracting deposits; for example, some banks require them to convert maturing 3-year deposits into 1-year or 2-year deposits or large-denomination certificates of deposit to prevent customers from moving their money elsewhere.
In summary, banks are struggling to reduce costs while retaining customers, facing a dilemma on both fronts.
Final Conclusion
Private banks’ removal of long-term deposits is a self-help measure in response to new loan assistance regulations, aimed at reducing high-cost liabilities and coping with the pressure of reduced lending volumes. If ordinary depositors want to save for longer periods, they may need to turn to large banks or accept lower interest rates.