China’s top financial authorities have issued a new circular that seeks to tackle the use of “illicit means” by banks to falsely inflate their deposits.
On 8 June the China Banking and insurance Regulatory Commission (CBIRC) and the People’s Bank of China (PBOC) jointly issued the “Notice Concerning Matters in Relation to Improving Commercial Bank Deposit Deviation Degree Management” (关于完善商业银行存款偏离度管理有关事项的通知).
The Notice requires that commercial banks further standardise their conduct when it comes to attracting deposits, and prohibits them from using illicit means to attract or “falsely inflate” deposit levels, including third-party intermediaries, delayed payments, the conversion of loans into deposits, wealth management products, or interbank business.
The Notice also stipulates that the deposit deviation value cannot exceed 4% at the end of each month, as compared to 3% previously.
The deposit deviation degree is a regulatory measure first launched in 2014, after the China Banking Regulatory Commission (CBRC) took note of excessive fluctuations in deposit levels amongst lenders, who were driving them up in order to improve their performance in mid-year assessments.
While June 2014 saw RMB deposits surge to 3.79 trillion yuan for a year-on-year increase of 2.19 trillion yuan, in the following month they plunged 1.98 trillion yuan.
The deposit deviation degree itself is calculated by subtracting average daily deposits for the month from deposits on the final day of the month, and dividing the result by average daily deposits for the month.
In addition to lifting the maximum deposit deviation degree, the new Notice also requires that commercial banks strengthen management of deposit stability, as well as improve their remuneration management systems, their performance assessment systems, strengthen “fundamental work” in relation to deposits, and “fundamentally restrict” any sudden changes in deposits just to satisfy assessments.
CBIRC said the new measures would help to further standards banking business conduct, and better support the development of the real economy.