(Yicai Global) June 28 -- Chinese savers can now get higher interest rates for a short-term fixed term deposit than for a long-term one as Chinese commercial banks invert their interest rates to better control costs, Yicai Global has learned.

As the country’s central bank lowers interest rates to boost liquidity, banks prefer the deposit term to be shorter to match the latest interest rates in order to avoid having to pay out at above the going rate, a manager at a large bank told Yicai Global.

China Construction Bank, for instance, is offering a rate of 2.75 percent for both three-year and five-year fixed deposits. However, if the deposit amount exceeds CNY50,000 (USD7,465), the interest rate for the three-year fixed deposit can rise to 3.15 percent while that of the five-year one will remain the same.

As interest rates drop, so are lenders’ margins. Banks’ net interest margins dropped 0.11 percentage point in the first quarter from the same period last year to 1.97 percent and the narrowing trend is the biggest operating pressure that they face, said Zeng Gang, director of the Shanghai Finance and Development Laboratory.

The squeeze on margins should bottom out in the middle of the year and, with a series of adjustments by regulators, things should start to improve in the second half, Zeng said.

Also with low demand for credit and with ample liquidity, lenders are much less motivated to build up their reserves and absorb deposits, especially long-term ones, industry insiders told Yicai Global. In the context of the macroeconomic downturn caused by the Covid-19 pandemic, the central government is more in favor of promoting consumption and investment.

Editors: Tang Shihua, Kim Taylor