Finance and economics once ｜ Strictly investigate ＂manual interest compensation＂, and the sword refers to the chaos of high interest rates.

    On the one hand, it is the spread pressure of bank operation, and on the other hand, it is the pressure of fierce competition. Many grass-roots branches of banks breed high-interest deposits such as "manual interest payment", and the hidden risks behind this cannot be ignored.

    Recently, the market interest rate pricing self-discipline mechanism issued an initiative, requiring banking financial institutions to prohibit high-interest deposits through manual interest payment, immediately carry out self-inspection and complete rectification before the end of April 2024.

    What is "manual interest compensation"?

    "Manual interest supplement was originally an errata link of the bank’s business operation error. On the premise that the system could not automatically complete interest settlement, special supplementary interest-bearing transactions were used for manual interest-bearing processing. However, in order to complete the storage task, some grassroots bank staff use manual interest payment as a way of interest rate subsidy to bypass internal pricing authorization. " A banker told reporters.

    Dong Ximiao, chief researcher of Zhaolian, said that the manual interest supplement broke through the authorized upper limit of deposit interest rate in disguise, raised the debt cost of banks and transmitted it to the asset side, or raised the price of loan funds, which affected the sustainability of financial support for the real economy. High-interest deposits also have a certain impact on the financial market order, leading to intensified competition among banks.

    In October, 2015, the People’s Bank of China liberalized the administrative control of bank deposit interest rates, and banks can float their own pricing. However, in order to prevent banks from taking deposits at high interest rates and "deposit wars", financial institutions have formed a self-discipline mechanism for market interest rate pricing, and agreed on the upper limit of deposit interest rate through industry self-discipline negotiation to curb irrational competition in the deposit market. In 2023, there were 2,055 members of the interest rate self-discipline mechanism, accounting for about half of the number of commercial banks.

    In order to standardize the competition order in the deposit market, the initiative initiated by the interest rate self-discipline mechanism on April 8 proposed that banks should establish an effective management system for manual interest payment, and bring manual interest payment into the scope of monitoring and management. The commitment of interest compensation made in violation of regulations before shall not be paid on the interest payment date. Banks should immediately carry out self-inspection and complete rectification before the end of April 2024.

   The picture shows a bank worker counting banknotes. Xinhua News Agency reporter Li Xin photo

    Strengthening deposit management through strict investigation of "manual interest payment" reflects the problems of refined management and connotative development that banks need to face directly at present.

    By the end of February, the balance of RMB deposits in China reached 290.7 trillion yuan, up 8.4% year-on-year. Contrary to the rapid growth of deposit scale, the deposit interest rate has experienced several rounds of downward adjustment.

    In June, September and December, 2023, major banks actively lowered the deposit interest rate for several rounds, and the medium and long-term deposit interest rates dropped significantly. Recently, a number of small and medium-sized banks in Henan, Shaanxi, Shanxi, Yunnan, Guizhou, Guangdong and other places have intensively issued announcements, announcing the reduction of time deposit interest rates and adjusting the categories to cover short-term, medium-and long-term time deposits.

    These adjustments are closely related to the narrowing net interest margin of banks.

    In 2023, the quoted market interest rate (LPR) of one-year and five-year loans decreased by 20 and 10 basis points respectively. In February this year, the LPR over five years was adjusted again, down by 25 basis points. Under this guidance, the weighted average interest rate of new corporate loans in February was 3.76%, which was at a historical low.

    This means that the gap between the bank’s loan interest income and deposit interest expenditure is narrowing, which directly affects the bank’s profits.

    According to the data released by the State Financial Supervision and Administration, by the end of 2023, the net interest margin of commercial banks had fallen to 1.69%, the lowest level in 20 years. This is also confirmed by the recently published annual report of listed banks. In 2023, the net interest margin of the four major banks of industry, agriculture, China and construction decreased from 16 basis points to 31 basis points.

    "The deposit and loan interest rates have entered the downward channel, and the net interest margin is under pressure. Many banks are still struggling to give up the scale complex and actively compete for more market share and customer resources. Various forms of high-interest deposits are emerging one after another." Dong Ximiao believes that deposits pulled by high interest rates are hard to have "loyalty", and depositors will "deposit and move" once they encounter higher interest rates. Banks need to carry out refined management throughout customer operations, business processes, risk management and resource allocation, and continuously improve operational efficiency and effectiveness.

    Many banks have realized these problems and are gradually abandoning the scale complex and speed complex.

    Rong Liu, the chief financial officer of China Construction Bank, said that at an internal meeting last year, CCB had clearly put forward that "heroes should not be judged by scale" and that it should pursue high-quality development. Subsequently, the bank stepped up efforts to adjust the asset-liability structure, promoted the increase in the proportion of interest-bearing assets, and made great determination to reduce interest-bearing assets and high-cost liabilities.

    Recently, the People’s Bank of China has publicly stated many times that there will still be sufficient policy space and abundant tool reserves in the future, so as to promote the steady decline of corporate financing and residents’ credit costs.

    The market generally judges that LPR still has some downside, and the pressure of net interest margin will further climb. In the future, how can banks restrain high interest rates from the source, and take into account the "profit-making real economy" and "steady operation"?

    A number of senior executives of listed banks made it clear at the performance conference that it is necessary to strictly control the scale of high-cost deposits, focus on revitalizing inefficient stock credit, and continue to increase investment in financial resources around key areas such as science and technology, green, universal benefits, and old-age care, and transform from price competition to quality competition.

    Zhang Yi, deputy governor of China Bank, said that banks need to make efforts on both the asset side and the liability side to optimize the loan structure and ensure the rationality and profitability of the loan. At the same time, actively manage the cost of debt and improve the efficiency of capital use. "We will further increase support for key areas such as five major articles, support the transformation and upgrading of household consumption, and increase the investment in personal housing loans and consumer loans."

    "Our logic of increasing efficiency is to stabilize interest margin, expand revenue and stabilize quality, instead of taking the’ quantity’ and’ price’ of loans as the main channels to increase revenue." Fang Heying, chairman of CITIC Bank, said that banks should "let" the interest margin and "benefit" the asset quality in order to benefit the real economy. Only when the overall economic environment is good can the bank’s asset quality be placed. (Reporter Wu Yu, Li Yanxia)