The latest data indicates that a slew of Chinese banks have lifted the rates for large-denomination certificates of deposit after the People’s Bank of China’s recent lifting of caps, in a move which is expected to shake up the competitive dynamics of the sector.
According to Rong360 data on 35 Chinese banks, large-denomination CD rates have risen to 30% above the benchmark across the board, giving them a distinct advantage compared to standard fixed-term deposits.
Average value of rates for large-denomination CD’s at various maturities
| Three months | Six months | One year | Two years | Three years | Four years | |
| Large-denomination CD’s as of end of 2017 | 1.42 | 1.73 | 2.06 | 2.72 | 3.52 | 1.39 |
| Large-denomination CD’s in April | 1.43 | 1.74 | 2.08 | 2.81 | 3.65 | 1.53 |
| Standard fixed-term deposits in April | 1.42 | 1.67 | 1.95 | 2.54 | 3.12 | 3.11 |
Major banks, such as Bank of China and the Agricultural Bank of China, as well as some municipal commercial banks, have taken the lead in raising rates for large-denomination CD’s, with some providing a premium of 52% relative to the benchmark.
At present the rates for one year, two year and five year large denomination CD’s are 51bps, 70bps and 83bps ahead of standard fixed-term deposit rates respectively, as compared to 9bps, 13bps and 14bps at the end of 2017.
PBOC has lifted the ceiling on CD rates to varying degrees depending upon the category of bank, in order to help address the wildly diverging scale and performance of domestic lenders, and the ongoing domination of the big state-owned banks.
The ceiling on rates for CD’s issued by China’s big banks has been lifted from 1.4 times the benchmark to 1.5, while for joint-stock banks and commercial banks the figure has been increased from 1.42 to 1.52, and for rural banks it’s been raised from 1.45 to 1.55.
As of the end of 2017 China’s big five state-owned banks had a deposit balance of 32.14 trillion yuan, accounting for nearly half of all household deposits.
When China Merchants Bank, a commercial bank that rivals the state-owned banks in size, is added to the mix, the six lenders account for well over half of personal deposits.
The ability to attract retail deposits of China’s other lenders is immensely variable. While some commercial banks such as China CITIC Bank, China Minsheng and Huishang Bank have seen growth of in excess of 60%, others have posted negative growth.
According to analysts the raising of the ceiling on CD rates will have a major impact upon the competitive dynamic within the Chinese banking sector.
“Under conditions where growth in RMB deposits is steadily declining, and there is enormous pressure on banks to grab deposits, the effect of easing the ceiling on deposit rates is comparable to raising interest rates,” said a Rong360 analyst to Lanjinger.
“It will help to raise the returns on household deposits, raise the competitiveness of deposit products compared to money market funds and wealth management products, and thus enable banks to more effectively reduce debt-side pressure and stabilise overall repost-seeking costs.
“Within the short-term, it will have a considerable positive effect upon increasing the rate of RMB deposit growth.”
