(Yicai) March 13 -- Small- and medium-sized Chinese lenders have initiated another round of deposit interest rate cuts as their net interest margins reached a historical low level and their liability costs exceeded those of state-owned banks.

More than 10 small financial institutions in Shanghai, Yunnan province, Jiangsu province, and Xinjiang Uygur Autonomous Region, especially rural banks, announced after the Chinese New Year holidays that they will once again lower their deposit rates, according to incomplete statistics from Yicai.

Xinjiang Bank said it will cut the nominal interest rates of Chinese yuan-denominated deposits from March 10. The nominal interest rate of current deposits dropped to 0.05 percent, that of one-year deposits to 1.15 percent, and that of five-year deposits to 1.35 percent, with the latter seeing the largest decline of 15 base points.

Regional small- and medium-sized banks are the protagonists of this round of deposit rate cuts, partly because their deposit rates were higher than those of state-owned banks, making the move inevitable after the Chinese New Year holiday, Dong Ximiao, deputy director of the Shanghai Institution for Finance and Development, told Yicai.

After this move, the nominal deposit rates of small lenders are still generally higher than those of large banks, despite getting close to those of state-owned banks. “While there is still room for further cuts, it is limited,” Dong believes.

Commercial banks should moderately lower deposit rates by the end of this year, but in a more flexible way, Dong noted, adding that the possibility of a concentrated rate cut will get increasingly low.

After multiple interest rate cuts, the nominal interest rates of state-owned banks are already very low, and those for one-year fixed deposits have dropped below 1 percent, so the room for further cuts is very limited, Dong said.

Banks with relatively high nominal interest rates are more likely to further trim deposit rates in the future, and deposit products with relatively high interest rates, such as long-term deposits, will be the key target, Dong pointed out.

He also suggested that lowering the interbank deposit interest rate could be one of the tools for structurally reducing lenders’ liability costs in the future.

Editors: Tang Shihua, Futura Costaglione