Structured Deposits of Chinese Banks See First Decline in Six Months


Structured deposits in China have seen their first decline in half a year after posting roaring growth on the back of new asset management regulations that target bank wealth management products (WMP’s).

Sweeping asset management regulations launched by Beijing at the end April undermined the viability of the WMP’s that smaller Chinese banks have long used to access retail funds, by targeting the “implicit guarantees” undergirding them as well as banning principal guaranteed products.

The move served to spur the popularity of structured deposits and jumbo certificates of deposits (CD’s) amongst Chinese lenders, as they searched for other funding arrangements to replace WMP’s.

Commercial bank structured deposits have seen roaring growth ever since the unveiling of the draft version of new asset management regulations in November last year, expanding from 6.9 trillion yuan in October 2017 to 9.26 trillion yuan in May.

January, February and March of this year saw on-month rises in personal structured deposits of 12.23%, 10.22% and 10.87% respectively, yet this growth dwindled in April to 1.71%.

While the new asset management regulations ban Chinese banks from selling principal guaranteed WMP’s, analyst say that lenders have used “fake” structured deposits to continue to provide implicit guarantees to investors by setting trigger events that are inevitable.

The latest data from the Chinese central bank indicates that June marked the first month in half a year that structured deposits in China posted an on-month decline.

In June the volume of structured deposits of large-scale Chinese invested banks and small and medium-sized banks was 9.205273 trillion yuan, for a contraction of 57.353 billion yuan compared to May.

Small and medium-sized banks were solely responsible for the decline in sector-wide structured deposits, with a fall of 71.6 billion yuan, as compared to an increase of 14.3 billion yuan for large banks.

According to domestic analysts a loosening of China’s monetary environment amidst escalating Sino-US trade tensions is at least partially responsible for the declining popularity of structured deposits.

Pressure is easing on the liabilities side for Chinese banks, reducing their need for structured deposits, although members of industry say that small and medium-sized lenders are still scrambling for funds.

“Compared to big state-owned banks who have large volumes of personal deposits, the scale of personal deposits amongst small and medium-sized banks is very small, and they are primarily dependent upon company deposits,” said one executive at a commercial bank in eastern China to 21st Century Business Herald.

“However, the source of company deposits is mainly dependent upon project loans. Our main deposit source is local government platforms, but at present local government platforms are very short of cash, and banks also lack quotas to invest in projects, so it’s very hard to drive deposits.”

While structured deposits can help to supplement the liabilities side, smaller banks find it difficult to provide “authentic structured” products due to resource limitations, while their rates are far from competitive.

“Our one-year structured deposit rate is 4.1%, but for joint-stock banks the rate is 4.4%,” said the source. “The main driver of deposits is likely still relationships and projects, we don’t have any advantages when it comes to rates.”

The bank in question is instead turning to the issuance of subordinated debt and jumbo CD’s to raise funds.

Analysts further point out that the unveiling of new regulations by the China Banking and Insurance Regulatory Commission (CBIRC) that supplement the earlier asset management rules will further undermine the popularity of structured deposits.

CBIRC’s new regulations mandate that structured deposits must be “properly” pegged to derivatives products and have a genuine transaction counter-party, bringing “fake structured deposits” that serve solely to provide high guaranteed yields to investors within the purview of regulatory scrutiny.

New regulations also place strict requirements on the qualifications of issuing banks, stipulating that only lenders qualified to engage in derivatives transactions can provide structured deposits.

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