(Yicai) Aug. 9 -- Deposit yields at many Chinese small and medium-sized banks have become inverted, with three-years deposit's yields now higher than five-year deposit's yields, after a number of recent interest rate adjustments, the 21st Century Business Herald reported today.

Several urban commercial banks, including Bank of Beijing, Bank of Shanghai, Bank of Jiangsu, Bank of Nanjing and Bank of Ningbo, have lowered their deposit interest rates since the end of last month. And at least 15 rural commercial banks have done the same in southern Guangdong province, according to incomplete statistics.

Most small and medium-sized lenders have trimmed interest rates by five basis points to 35 bps, with bigger adjustments on longer term deposits. This has meant that their fixed-term deposit rates are mostly higher than state-owned lenders, with a gap of up to 85 bps.

As a result, the nominal rate on three-year deposits is now equal to or more than the nominal rate on five-year deposits at many joint-stock as well as urban and rural banks.

Qilu Bank in eastern Shandong province is offering an interest rate of 1.9 percent on a three-year fixed deposit and 1.85 percent on a five-year fixed deposit. The Bank of Jilin in northeastern Jilin province is paying a yield of 2.4 percent for a three-year lump-sum deposit and 2.2 percent on a five-year one. Similarly for Shenjing Bank in northeastern Liaoning province, the yield on a three-year deposit is 2.5 percent while that on a five-year one is 2.3 percent.

This is not a new phenomenon. Back in June, the average interest rate for a three-year fixed deposit was 2.507 percent, while that for a five-year deposit was 2.433 percent, according to data from think tank Rong360 Digital Technology Institute.

Credit lending is at a low level now due to the downward pressure on the economy, said Zhang Yu and Guo Qiwei, two analysts at Huafu Securities. And deposit yields are likely to continue to tumble. This means that banks will be more inclined to absorb shorter-term deposits at a low cost and reduce the amount of high-cost longer-term deposits.

After the latest round of rate cuts, the interest rates on fixed deposits that mature in two or more years’ time is now less than government bonds with a similar maturity date, CIB Research said. By reducing the amount of fixed long-term deposits, banks will be able to ease their interest payment pressure.

Editor: Kim Taylor