(Yicai) April 14 -- Chinese banks, especially small and mid-sized lenders, have reduced their fixed deposit rates this month in response to rising liability costs.

Jiangxi Jiangzhou Rural Commercial Bank, for instance, lowered the interest rates it pays on all of its fixed deposit products on April 9, with a 38 basis point cut in the five-year deposit rate to 1.47 percent being the steepest reduction. On the same day, Shanghai Rural Commercial Bank’s unit Chiping SRCB Rural Bank On also pared rates, with the biggest reduction seen in its three-month deposit products, which were cut by 15 bps to 1.4 percent.

Expectations are growing for a cut in the reserve requirement ratio -- the percentage of deposits a financial institution must hold in reserve as cash -- or interest rates in response to external shocks and to stimulate domestic demand, Yang Haiping, researcher at the Shanghai Institute of Finance and Law, told Yicai.

Banks are cutting deposit rates to ensure that their net interest margins -- or the difference between the amount of money a bank earns on loans and the amount it pays on deposits -- do not shrink further in the new market environment, Yang explained.

Against the backdrop of increasing economic uncertainty and declining risk appetite, deposits ticked up last year, which, coupled with rising debt costs, forced banks to trim rates multiple times. Deposits at 25 listed Chinese banks rose 5 percent from the year before to CNY185.58 trillion (USD25.4 trillion) in 2024, after balances swelled at 23 lenders, according to data from Wind Information.

Moreover, the share of higher-interest fixed rate deposits rose. At Bank of Communications, for example, demand deposits accounted for 33.1 percent of the total as of Dec. 31, down from 34.3 percent a year earlier. Meanwhile, its share of time deposits rose to 65 percent from 63.9 percent.

Lenders that saw their deposit balances grow faster also tended to have relatively larger increases in annual interest expenses. Jiangsu Changshu Rural Commercial Bank, which ranked third nationwide with a deposit growth rate of 15.6 percent, reported a 13.8 percent surge in interest expenses. Bank of Ningbo, which ranked second with 17.2 percent growth, saw its interest expenses soar 13.4 percent.

Editors: Tang Shihua, Futura Costaglione