Finance Association, November 14 (Reporter Cao Yunyi) Recently, interbank deposit interest rate pricing has sparked a buzz in the market. Industry insiders told CFA reporters that changes in interbank demand deposit interest rates put a particularly clear pressure on bank debt in the second and third quarters.

The market believes there is room for further decline in interest rate pricing. The data shows that if interest rates on interbank deposits are lowered to around 1.5%, bank debt costs can be reduced by about 2-3 basis points, which will effectively reduce bank debt costs.

Interest rates on interbank demand deposits are high, and the debt pressure on major state-owned banks is obvious

“Changes in interbank demand deposit interest rates have an impact on banks' net interest spreads, and adjustments can directly reduce bank debt costs.” Today, a banking industry insider told the Finance Association reporter, “The scale of interbank deposit growth has been outstanding since this year, especially in the second and third quarters of this year.”

Currently, the banking industry is generally under pressure from net interest spreads, but interest-bearing costs for interbank business are rising. According to Societe Generale Research estimates, since 2024, although interest rates in the financial market have generally declined, the semi-annual report shows that in the first half of 2024, the interest-accruing costs for the “deposit and separation of funds from peers and other financial institutions” of major listed state-owned banks and stock banks increased by about 10 bp over the same period last year.

Zhou Maohua, a macro analyst at the Financial Markets Department of Everbright Bank, told the Finance Association reporter that this is related to the recovery of the domestic asset management market and equity market since this year, driving the transformation of residents' savings deposits into institutional deposits. “If original residents' demand deposits are converted to bank interbank deposits, the latter deposit interest rate is higher than the former, which will naturally drive up the bank's overall debt cost, which is not conducive to stabilizing net interest spreads.” Zhou Maohua thinks.

“Judging from the financial reports of listed banks, as of the end of September, the amount of 'deposits with interbank and other financial institutions' was close to 27 trillion yuan, accounting for 8.9% of domestic financial institution deposits per month. Overall, the scale is not small. In particular, interbank deposits of the six major state-owned banks account for 67% of monthly interbank deposits in the banking sector.” Zhou Maohua pointed out.

Regarding the high debt pressure on major state-owned banks, Liao Zhiming, a fixed income analyst at Huayuan Securities, believes that the excessive interest rate of some major banks has significantly affected short-term interest rates, causing interest rates on interbank deposits to remain high in recent times, raising bank debt costs, and is not conducive to the transmission of monetary policy.

“Currently, the current interest rate of some major banks is as high as 1.8%. Recently, national bank term deposits have been cut by 25 BP, the central bank's reverse repurchase rate has been cut by 20 BP, and the MLF has cut 30 BP, while the central bank's 7-day reverse repurchase interest rate is only 1.50%. It is unreasonable to pay interest rates on current deposits that exceed this policy interest rate.” Liu Zhiming said.

Standardizing the pricing of interbank deposits is imperative

Recently, it was reported that members of the interest rate pricing self-regulation mechanism plan to issue an initiative to regulate higher interbank current deposit pricing. The initiative suggests that starting in December of this year, commercial banks should use the open market 7-day reverse repurchase operation interest rate as the pricing benchmark to reasonably determine the interest rate level of interbank demand deposits, and fully reflect the interest rate policy orientation.

“Some interbank demand deposit interest rates may be significantly higher than the current policy interest rate (1.5%). This self-regulatory mechanism discussion regulates interbank demand deposit pricing behavior. It is expected that the aim is to make interbank demand deposit interest rates fluctuate around policy interest rates and increase the transmission effect of policy interest rates.” The Societe Generale Securities Research Institute report points out.

Many experts have said that regulating interbank deposit pricing in the future will effectively reduce banks' debt costs.

Lu Political Committee, chief analyst at Industrial Bank, said that there are two possible ways to regulate interbank deposit pricing: First, it is regulated through a deposit self-regulation mechanism, and points can be added to the 7-day reverse repurchase interest rate to determine the upper limit of interbank deposit interest rates. If the average cost of interbank deposits falls by about 20 BP, the impact on bank debt costs is 2 BP. The second is to strengthen self-regulatory supervision of insurance company deposits or raise deposit starting standards for agreement deposits. The yield on deposits disclosed by listed insurance companies in 2023 is between 3.52% and 5.92%. If insurance companies' deposit interest rates are reduced by 100 to 200 BP, the impact on bank debt costs is 1 to 2 BP.

“If the seven-day open market reverse repurchase profit is used as a benchmark for pricing, it is a deepening of China's interest rate marketization reform. It will help improve the standardization and transparency of interbank deposit interest rate pricing, better maintain the normal competitive order in the market, help bank debt management, and reduce comprehensive debt costs.” Zhou Maohua said.

Liu Zhiming expects that if the initiative is implemented, interest rates on interbank demand deposits will drop to 1.5% and below across the board, and in the future, following the central bank's seven-day reverse repurchase interest rate change, it will reduce bank interest expenses by more than 30 billion yuan per year, effectively reducing the debt costs of major banks.