(Yicai) Dec. 4 -- Big Chinese banks have halted sales of long-term large-denomination certificates of deposit as the industry faces sustained pressure on net interest margins, while small and medium-sized lenders are raising interest rates to compete for deposits at year's end.

Five-year large-denomination certificates of deposit, typically a key year-end offering for deposit-taking, have rapidly disappeared from the market, Yicai learned. Six state-owned banks recently removed all five-year products, leaving only maturities of six months to three years, and inverted yield curves have emerged, with two-year rates exceeding three-year rates at some banks.

The trend is surprising since, according to past practice, the year-end is usually the peak season for commercial banks to expand issuance of large-denomination certificates of deposit as a major tool to attract deposits. But this year marks a notable departure, with five-year products withdrawing from the market despite the usual seasonal surge.

The suspension of five-year deposits and the inversion in deposit pricing reflect banks’ efforts to stabilize narrowing net interest margins by reducing liability costs, said Lou Feipeng, a researcher at Postal Savings Bank of China.

Many lenders have already taken long-term deposits off shelves, and more products may quietly exit the market, added Ming Ming, chief economist at Citic Securities, noting that adjustments had been underway for some time but remained obscured by not-yet-matured legacy deposits.

At the same time, some state-owned banks have begun offering large-denomination certificates of deposit with higher minimum thresholds of CNY1 million (USD141,460) while keeping interest rates unchanged. These moves suggest that banks are repositioning traditional deposit products as tools to maintain customer relationships, said Dong Ximiao, chief researcher at CMB-China Unicom Consumption Finance. With deposit and asset management product yields declining, investors should adjust expectations for returns, he said.

In contrast, some small and medium-sized banks facing year-end funding pressure are raising deposit rates. Shengjing Bank, for example, recently lifted its one-year and three-year lump-sum deposit rates by 0.1 percentage points and raised rates by 0.2 percentage points on products requiring deposits of CNY1 million, a bank manager said. Smaller lenders lack the same deposit-attraction advantages as large banks and face heavier pressure, Lou added.

Intensifying margin pressure will continue to drive structural adjustments and differentiated competition in the deposit market, Dong said. Because banks vary in market positioning, customer mix, and liability structures, their pace and magnitude of deposit rate changes will differ. Overall, commercial banks are expected to keep lowering deposit rates to reduce funding costs and ease net interest margin compression.

Editor: Emmi Laine