As the year comes to an end, the rush among banks to attract deposits is visibly underwayHowever, unlike previous years, this year's competition seems to lack the fanfare and intensity typically associated with such boutsThis observation surfaces from the recent analysis of the banking sector, where a major factor stands out: many banks are not engaging in massive deposit solicitation campaigns.

Most banks appear to be adopting a more restrained approach this yearInstead of aggressive promotional strategies, only a handful of smaller banks have resorted to increasing deposit interest rates as a means to entice saversThis shift in strategy has caught the attention of industry insiders, who suggest that this trend may persist into the year-end and possibly during the Lunar New Year festivities when demand for funds traditionally spikes.

Despite heightened competition expected in the banking world due to the seasonal surge in fund demand, some banks revealed they have no intention of increasing their deposit rates, and a few are even contemplating decreases

For instance, Zhou Maohua, a macroeconomic researcher at China Everbright Bank's Financial Markets Department, advised depositors to adjust their expectations regarding returns from savings and other financial productsMeanwhile, banks are urged to balance their deposit rate strategies with considerations of market supply and demand, liability capabilities, and overall business conditions.

A notable instance of raising deposit rates occurred amongst smaller banks, with some announcing increases of up to 50 basis pointsFor example, the Xinyang Rural Commercial Bank disclosed that effective December 7, it would raise interest rates on deposit products starting from 10,000 yuan across different termsThe rates for three-month, six-month, one-year, two-year, and three-year deposits were adjusted to 1.15%, 1.35%, 1.8%, 1.8%, and 2.05%, respectively, representing an increase of 20 to 50 basis points over previous rates.

Similarly, the Yuzhou Rural Credit Cooperatives announced an uptick in deposit rates on December 5. Their three-month and six-month fixed deposit rates were lifted to 1.15% and 1.35%, respectively, with a minimum deposit of 10,000 yuan

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Their one-year term deposit rates also featured tiered variations depending on the amount: a rate of 1.66% for deposits starting at 10,000 yuan, and 1.71% for those beginning at 100,000 yuan.

A branch manager from a Jiangsu rural commercial bank commented on their decision to modestly increase the deposit rates based on various tiers of deposit amountsIn one example, for a two-year fixed deposit, the rates varied: 1.55% for deposits ranging from 10,000 to 100,000 yuan, 1.65% for amounts between 100,000 and 500,000 yuan, and 1.75% for deposits exceeding 500,000 yuan.

Analyst Ai Yawen from Rong360 Digital Technology Research Institute indicated that year-end represents a particularly critical time for banks, pressured by performance assessmentsTherefore, some smaller banks are opting to raise deposit rates in a bid to attract customers and fulfill their targetsHowever, she pointed out that the rate changes also reflect short-term funding strategies tailored by these banks to retain their clientele.

Despite the emergent trend of increasing deposit rates at some institutions, not all banks are following suit

For instance, a financial market representative from a rural bank in Xinjiang stated, "We have no plans for rate hikes and are even considering decreases." This highlights the varied circumstances and strategies that banks are adopting amidst a fluctuating economic landscape.

In general, smaller banks tend to struggle more with deposit attraction due to several disadvantaging factors compared to their larger counterparts including brand recognition, customer bases, or funding channelsThough their deposit rates might be higher, Zhou Maohua emphasizes that pricing for deposit products also significantly depends on the specific bank's liabilities, regional advantages, and execution prices at play.

Looking ahead, Zhou predicts a continued decline in deposit ratesHe points out that the rapid decrease in deposit rates is closely tied to unique macroeconomic conditions, policies, and the prevailing environment of the deposit market in China

Consequently, he advises depositors to recalibrate their expectations concerning returns, highlighting the importance of avoiding excessive risks that could lead to probable lossesFurthermore, as the economy slowly recovers, he encourages investors to consider diversifying their asset allocations to balance yield and risk effectively.

On the banking side, Ai Yawen warns that persistently lowering deposit rates might catalyze a shift in deposits towards higher-yielding financial products, complicating the situation for banks that rely on these traditional savingsWith depositors becoming increasingly selective, some may show a marked preference for long-term fixed deposits, thereby heightening liquidity pressure on banks sensitive to these interest ratesWithout proper management, these conditions could lead to an increase in customer attrition.

Currently, the market enjoys a relatively stable liquidity position, with rates remaining low

However, the structure of the deposit market still exhibits signs of imbalanceZhou Maohua mentions that while there is room for lowering deposit rates, banks face clear constraintsLowering rates could diminish the value proposition of deposit products, escalating the risks of deposits relocating to alternative institutions.

Zhou insists that banks must assess various factors, such as market supply and demand, their liability capabilities, and their implications for business health while adjusting deposit ratesHe stresses the significance of middle and small-sized banks in regional economic and industry development, suggesting that sustained high-quality development in these banks can stimulate local economiesApproaching the future, these smaller banks need to harness their geographic advantages and focus on optimizing operational efficiency while boosting risk management capabilities