China’s Major Banks Cut Deposit Rates Again as Economic Pressures Mount

On May 20, China’s largest banks cut deposit interest rates in a coordinated move to ease funding costs and support policy easing efforts amid mounting economic headwinds. The decision reflects growing pressure on bank profitability and comes as the country continues to face weak domestic demand and a challenging global environment.

Broad-Based Rate Cuts: Up to 25 Basis Points Lower

Several major state-owned lenders—including Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China, Bank of China, and China Merchants Bank—announced cuts across a range of deposit maturities.

• One- and two-year fixed deposit rates were lowered by 15 basis points;

• Three- and five-year deposit rates were reduced by 25 basis points;

• After the adjustment, one-year deposits now offer 0.95%, two-year at 1.05%, three-year at 1.25%, and five-year at 1.3% at major banks.

This is the latest step in a series of cuts that began in late 2022, when Chinese regulators encouraged banks to boost lending. It marked the first broad-based deposit rate cut since 2015. Since then, medium- and long-term deposit rates have been more than halved.

Lending Rates Also Lowered: LPR Down by 10bps

On the same day, the People’s Bank of China (PBoC) lowered its Loan Prime Rates (LPR), widely used as benchmark lending rates:

• The one-year LPR, the reference for corporate loans, fell to 3.00%;

• The five-year LPR, which guides mortgage pricing, dropped to 3.50%.

This followed an earlier cut to the central bank’s policy lending rate (MLF) and was broadly in line with market expectations. It signaled continued monetary easing to support economic recovery.

Background: Profit Margins Under Pressure

According to Shanghai Securities News, money has started to flow back into bank wealth management products in the second quarter of 2025, as deposit returns continue to shrink. Fixed-income and cash management products recorded asset growth of 8.4% and 7.9%, respectively, from the end of Q1, suggesting that households are gradually seeking higher-yield alternatives.

Meanwhile, China’s 10-year government bond yield has fallen steadily to around 1.66%, near historic lows. This indicates persistently low funding costs and limited room for banks to maintain traditional interest margins.

To preserve earnings and balance the cost of funding, banks are cutting deposit rates to manage profitability while aligning with policy goals to stimulate consumption and lending.

Macro Context: Domestic Weakness, Global Constraints

China’s economy is navigating multiple challenges:

• Domestic demand remains weak. April data showed stronger-than-expected industrial output but disappointing consumption, reflecting still-fragile household sentiment.

• Real estate remains a drag, with property investment and sales continuing to slow.

• Externally, while trade tensions with the US have recently de-escalated, uncertainty remains. Meanwhile, high interest rates in the US continue to attract global capital inflows, making it harder for emerging markets like China to maintain monetary independence.

Amid these pressures, Chinese authorities are relying more heavily on monetary policy tools—including deposit rate cuts—to support growth and preserve financial stability.

The latest deposit rate cuts by China’s major banks, alongside a reduction in benchmark lending rates, represent a clear policy signal in the face of slowing economic momentum. As the country copes with subdued domestic demand and an unfavorable global environment, easing funding costs remains a central strategy in the broader effort to stabilize growth.