Open Source Securities: Market's Most Pessimistic View on the Banking Sector Is Being Corrected

Open Source Securities points out that the current performance of bank stocks is driven by both fundamentals and liquidity factors. As several listed banks forecast positive results for 2025, the market’s most pessimistic outlook for the industry is being revised. It is recommended to focus on banks with strong group synergy, innovative product capabilities, and robust asset acquisition abilities.

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Possible Impact of Strengthening Interbank Deposit Self-Discipline — Industry Review Report - 20260310

1. Regulatory emphasis on interest rate transmission makes strengthening interbank deposit self-discipline necessary

On March 6, at the Fourth Session of the 14th National People’s Congress, People’s Bank of China Governor Pan Gongsheng clearly stated, “Enhancing the implementation and supervision of interest rate policies is necessary to regulate some unreasonable market behaviors that could weaken monetary policy transmission.” Recent regulatory actions, such as rectifying behaviors like manual interest top-ups, interbank deposits, and interest rate floor clauses used for arbitrage, have effectively lowered banks’ liability/deposit costs, creating conditions to protect net interest margins and support low-cost financing for the real economy. Interbank deposits are large in volume and tend to trigger irrational competition among banks under the trend of deposit wealthization, which may become a focus of future self-discipline.

2. Interbank deposit self-discipline 2.0 may be incorporated into EPA and linked to MPA

If the 2.0 version of interbank deposit self-discipline is implemented, it is expected to be included in EPA pricing behavior assessments. The “pricing behavior” assessment in EPA occurs quarterly, with results directly affecting MPA. We believe the specific rules will continue the 1.0 version’s approach of setting daily average price limits, with upper limits (e.g., 10%, 20%) on the proportion of deposits exceeding the OMO rate for the quarter, with penalties for excess. Although the enhanced self-discipline will be part of the “pricing behavior” assessment, it is unlikely to be a veto item or cause a concentrated impact. If ultimately linked to MPA assessments, the constraints on banks may vary, and banks with lower MPA evaluation requirements may be less affected.

3. Scale involved: 16 trillion yuan of interbank active deposits across the industry, with an expected net interest margin increase of +0.7 basis points

Assumptions: (1) The actual weighted average interest rate for listed banks’ interbank active deposits is 1.4%; (2) the portion with interest rates below 1.4% is settlement active deposits, averaging 0.4%; deposits with interest rates above 1.4% average 1.6%. (Note: Bank deposit reporting period ends at the end of 2025H1; wealth management and funds report at the end of 2025Q4)

Results: (1) 17% of interbank active deposits have rates ≤1.4%, and 83% >1.4%; (2) total high-interest-rate interbank active deposits for listed banks amount to about 11.69 trillion yuan, accounting for 44.44% of total interbank deposits. Since non-bank financial institution deposits (not limited to listed banks) total 35.85 trillion yuan at the end of 2025, with approximately 16 trillion yuan of high-interest-rate interbank active deposits (calculated at 44.44%).

Impact: (1) On banks: reducing high-interest-rate interbank active deposits from 83% to 10% could lower listed banks’ liability costs and net interest margins by approximately -0.75 basis points and +0.7 basis points, respectively. Large banks may experience temporary disruptions in the deposit-loan spread, but the direct impact on liquidity risk indicators is limited. Over time, long-term interbank CD pricing will gradually reflect more of the banks’ management needs rather than purely funding attributes. Small and medium-sized banks may face two strategic choices: shrinking assets or actively replacing liabilities at better prices, with some possibly shrinking their balance sheets passively.

(2) On asset management products: if the interest rate for interbank active deposits obtained by wealth management and public funds drops from 1.6% to 1.4%, the yields of all wealth management products would decrease by approximately -1.47 basis points, with cash management products dropping by -2.56 basis points; all public fund yields would decrease by about -1.43 basis points, with money market funds dropping by -3 basis points. It is expected that interbank CDs, interbank fixed deposits, and short- to medium-term bonds within 3 years will see increased allocations.

4. Investment recommendations

Currently, the performance of bank stocks is driven by both fundamentals and liquidity factors. As several listed banks forecast positive results for 2025, the market’s most pessimistic views are being revised. It is recommended to focus on banks with strong group synergy, innovative product capabilities, and asset acquisition strength. Suggested stocks include CITIC Bank and Suzhou Bank, with beneficiaries such as Agricultural Bank of China, Industrial and Commercial Bank of China, Jiangsu Bank, Hangzhou Bank, and Chongqing Bank.

(Source: First Financial)