(AsianFin)—China Merchants Bank (CMB) has no longer issued three-year and five-year large-denomination certificates of deposit since the beginning of 2024 as the central bank has kept benchmark interest rates low in the past few years.
Although three consecutive interest rate cuts in 2023 have made bank deposits much less attractive, many bank customers still prioritize the low-risk and stability of bank deposits. As such, several banks have restricted the issuance of large-denomination certificates of deposit.
Experts suggest that banks are compressing funding costs to manage net interest margins.
Some customers are perplexed by the move. CMB explained that while customer deposit demand remains strong and liquidity is ample, lending activity is subdued. Thus, curbing high-cost medium- to long-term deposits can help manage net interest margins.
Large-denomination certificates of deposit in China refer to high-value deposit certificates offered by banks to individuals and institutions. They can be transferred before maturity and typically have higher interest rates than regular fixed-term deposits. The three-year large-denomination certificates of deposit of CMB previously offered a relatively high interest rate of 2.9%.
At present, the bank's large-denomination certificate of deposit products do not include three-year and five-year options. Other banks, like the Industrial Commercial Bank of China (ICBC), still offer three-year options, albeit at the same interest rate as regular fixed-term deposits. CMB's shift towards regular deposits is evident in their financial report, where regular deposits, especially retail ones, have increased significantly.
To cope with narrowing net interest margins, CMB aims to control high-cost deposits and allocate assets effectively, focusing on retail credit assets like credit cards and consumer loans.
Commercial banks, including CMB , are facing pressure to compress costs due to declining net interest margins. While measures like capping large-denomination certificates of deposit have had some effect, long-term strategies must prioritize reducing reliance on net interest margin income and increasing non-interest or intermediary income.