Will China’s Large Denomination CD’s Rival Wealth Management Products?


Rates for China’s large denomination CD’s have risen considerably since the signalling of further interest rate reforms by central government regulators, making them a potential rival for bank wealth management products.

At the 2018 Boao Forum for Asia Chinese central bank governor Yi Gang flagged further reform of China’s interest rate system, including the removal of the informal ceiling which continues to restrict deposit rate increases against the benchmark rate to under 50%, even following the cancellation of official constraints in 2015.

Rates on large-denomination certificates of deposit have seen considerable gains following Yi Gang’s remarks at the start of last month.

Since mid-April Chinese jumbo CD’s issued by the big Chinese banks have seen rates rise from 1.4 to 1.5 times the benchmark, while those issued by joint-stock banks have risen from 1.42 to 1.52-fold, and the increase for municipal lenders have been from from 1.45 to 1.55.

Amongst China’s big state-owned lenders Bank of Communications has implemented the largest hike, increasing the rate for 1 million yuan 3-year CD’s to 4.13%, or 1.5 times the benchmark rate.

Amongst joint-stock banks the Shanghai Pudong Development Bank and China Merchants Bank have both lifted rates on their latest 3-year large-denomination CD’s to 4.13%, while municipal lender Bank of Ningbo has raised the rate for its 200,000 yuan 3-year CD’s to 4.26%.

Other municipal lenders including Bank of Shanghai, Bank of Bohai, Bank of Jiangsu and Bank of Nanjing have raised rates for three-year CD’s to 4.18%.

Analysts said to Yicai that ongoing tightness of funds since mid-April has spurred multiple banks to raise rates for CD’s, as has the rising popularity of structured deposits since the start of 2018.

In addition to rate gains, the launch of new asset management regulations that could undermine the implicit guarantees for wealth management products could abet the popularity jumbo CD’s.

One executive at the Shanghai branch of a major state-owned banks said that with the imminent removal of the “implicit guarantees” underlying bank wealth management products (WMP), some investors have started to show interest in jumbo CD’s that offer protection to both principal and interest.

In terms of yields and size thresholds, however, CD’s still lack the appeal of bank WMP’s and money market funds, and for this reason are more suited to high-net worth investors with low risk appetites.

While large-denomination CD’s start at 200,000 yuan, and those providing higher rates tend to fall within the 500,000 yuan and 1 million yuan range, the starting amount for bank WMP’s can be as low as 50,000 yuan, making them accessible to small and medium-sized investors.

Returns on jumbo CD’s are still markedly lower than those provided by WMP’s and money market funds, with the average rate for those with maturities of under a year still below 2.3%.

One executive at a joint-stock Chinese bank pointed out that the rate for its one-year large CD’s is only 2.13%, while the rate for bank WMP’s with maturities of under a year that do not provide principal guarantees ranges between 4.7% and 5.5%.

According to data from Wind, the average rate China’s money market funds was 4.19% in the first quarter of 2018.

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