(Yicai) Aug. 13 -- China’s commercial banks saw five-year deposit rates rise by 0.7 basis point in July, bucking a broader downward trend across other maturities, according to a report recently released by the Rong360 Digital Technology Research Institute.

The overall decline in deposit rates remains unchanged, despite the fact that banks seek to strike a balance between controlling funding costs and retaining customer deposits, an analyst said.

The average bank deposit rate last month for three-month deposits was 0.949 percent, for six-month deposits it was 1.152 percent, for one-year deposits it was 1.263 percent, for two-year deposits it was 1.358 percent, for three-year deposits it was 1.683 percent and for five-year deposits it was 1.56 percent, according to the institute's July report on bank deposit rates.

Compared with the previous month, the three-month deposit rate dipped 0.2 basis point, the six-month deposit rate slid by 0.1 basis point, the one-year deposit rate edged down 0.2 basis point, the two-year deposit rate sank 0.4 basis point and the three-year deposit rate dropped 0.1 basis point, the institute said. By contrast, the average rate for five-year deposits rose by 0.7 basis point.

The interest rates on large-denomination certificates of deposit show a similar pattern. The three-month rate tumbled by 10.45 basis points, the six-month rate slumped 9.5 basis points, the one-year rate dropped 6.22 basis points, the two-year rate sank 7.94 basis points and the three-year rate dipped 0.59 basis point, while the five-year rates climbed 2 basis points.

China’s banking sector is under continued pressure from narrowing interest margins and is further reducing its reliance on long-term, high-cost funding, said Ai Yawen, a senior analyst at the Beijing-based institute. As a result, interest rates on most long-term fixed deposits are continuing to decline.

At the same time, rural commercial banks and private banks have bucked the broader industry trend, with some recently raising fixed deposit rates, particularly for medium- and long-term products.

Rural commercial banks and private banks are inherently less capable of attracting deposits than nationwide commercial banks, Ai said. As rates decline across the industry, smaller banks are facing greater pressure from the “deposit migration” of customers to competing institutions. As depositors become increasingly sensitive to returns and more inclined to compare rates across banks, some rural commercial and private banks have opted to offer relatively higher rates as a competitive strategy.

In addition, the issuance of five-year large-denomination certificates of deposit, which had been suspended for a period, has resumed, Ai said. Some national banks and urban commercial lenders have gradually restarted offering five-year certificates of deposit, although overall issuance remains limited.

“Overall, the decline in deposit rates in July coexisted with the selective resumption of five-year large-denomination certificates of deposit, reflecting banks’ cautious balancing of funding-cost controls and customer deposit retention,” Ai said. “The downward trend in deposit rates remains firmly in place.”

Editor: Kim Taylor