The latest data indicates that structured deposits are seeing roaring growth amongst Chinese banks sector, as Beijing cracks down on the wealth management products (WMP’s) that have long been a mainstay of the country’s shadow banking sector.
The “2018 Financial Institution Credit Balance of Payments and Receipts Statistics” (2018年金融机构信贷收支统计) just released by the People’s Bank of China indicate that as of the end of March the structured deposits of Chinese national banks had reached 8.8 trillion yuan, for an increase of 1.84 trillion yuan in the first quarter alone, as compared to growth of 1.8 trillion yuan in 2017.
Wu Wen (武雯), a senior researcher from the Bank of Communications, said to Securities Daily that the surging growth in China’s structured deposits was due to a shift in internal demand from the off-balance sheet WMP’s of banks to structured deposits.
Li Qilin (李奇霖), chief macro-economics researcher with Lianxun Securities, that there were two main reasons behind surging growth in Chinese structured deposits, the first being that online third party platforms, money market funds and other products were divvying up savings usually destined for depository institutions.
The second reason was that the WMP’s used by banks to expand the debt side of their balance sheets had come under pressure from new asset management regulations, forcing banks to search for fresh sources of funds
According to Li many of the products that are “structured deposit” in name are in actuality “fake” products that seek to canvas deposits via the provision of high interest rates. .
New asset management regulations launched by Beijing at the end of April banned the provision of “implicit guarantees” on the WMP’s that are widely employed by smaller Chinese banks to access funds by providing rates of return higher than the ceiling on deposit rates.
Previous reports indicated that as a result of the new asset management regulations, many smaller Chinese banks had suspended the sale of guaranteed principal WMP’s, and were instead promoting large denomination certificates of deposit and structured deposits as alternatives to clients, given that these products are considered to enjoy implicit guarantees.
According to one report from the Guangzhou Daily, many of the structured deposits being sold by banks are “fake” products that in reality provide fixed returns, and could soon be the target of a regulatory crackdown.
Li Qilin said that regulators would likely introduce new measures to target structured deposits in three key areas.
The first would be to restrict the issuance of structured deposits or structured WMP’s by financial institutions that lack qualifications to engage in derivatives operations.
The second would be to investigate the derivatives tied to structured deposits or wealth management products, and restrict the provision of structured deposits which lack any actual derivatives transactions.
The third would be to inspect whether the trigger conditions for structured deposits were highly probable or even certain events, in order to restrict the use of such conditions to ensure that structured deposits provide fixed returns.
Will Regulators Target Switch from WMP’s to Structured Deposits by Banks?
Banks Removed Guaranteed Principal WMP’s Due to New Asset Management Rules
Will China’s Large Denomination CD’s Rival Wealth Management Products?