Chinese Banks Sees Lurch in Fixed Term Deposits

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A surge in the volume of fixed term deposits at Chinese banks has created concerns amongst domestic observers about the impact on interest rates, as regulators seek to reduce borrowing costs for the real economy.

According to data from the Chinese central bank, as of the end of September fixed-term deposits at commercial banks in China stood at 72.312987 trillion yuan, for an increase of 2.43871 trillion yuan in the third quarter. They are now ahead of demand deposits, which stood at 69.976476 trillion yuan as of the end of September, for a decline 124.768 billion yuan in the third quarter.

“Looking at the pace of increase of different deposit types in September, fixed deposits are still seeing the fastest growth and rising at record highs,” said Wei Lulu (韦璐璐), analyst from China International Capital Corporation. “Demand deposit year-on-year growth is seeing modest improvements at the margins, but still at single digit growth and comparatively slower.”

Wei points out that if fixed term deposits lead growth in bank deposits, this will create challenges for reducing financing costs across the Chinese economy.

“The rate for demand deposits is around 0.30%, while for the shortest fixed-term deposit – three months – it’s 1.5%, for a 120 basis point difference.

“From the current policy perspective, in future we expect that policy will continue to guide declines in fixed-term deposits, as this will be of benefit to avoiding the further shift to fixed-term deposits.”

“Additionally, policy will focus on supporting the economy, improving economic expectations and in particular improving expectations in the real estate sector, as well as continuing to reduce the financing costs for enterprises.”

Since mid-September big state-owned banks, joint-stock banks and some municipal and rural commercial banks have made reductions to their deposit rates, with reductions of 0.15 percentage points for 3-year terms and 0.1 percentage points for other terms.