Structured Deposits Exceed 10 Trillion Yuan, Beijing Expected to Tighten Derivatives Licensing

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Chinese regulators are expected to crack down on the provision of structured deposits by banks in the wake of surging growth in their popularity.

Data from the Chinese central bank indicates that the structured deposits balance reached 10.018 trillion yuan as of the end of August.

The retail end structured deposits balance stood at 4.196 trillion yuan, or 41.89%% of the total, while the enterprise-end structured deposits balance stood at 5.822 trillion yuan, or 58.11%.

Analysts previously said that Chinese banks were using  structured deposits to replace wealth management products (WMP’s) as a key means of accessing retail funds, after new asset management regulations launched in April removed the “implicit guarantees” undergirding the popularity of the latter.

The “2018 Financial Institution Credit Balance of Payments and Receipts Statistics” (2018年金融机构信贷收支统计) released by the People’s Bank of China in May indicated 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.

The surge prompted speculation at the time that Chinese regulators would crack down on the use of structured deposits, particularly given that many banks were providing the products without licenses required to engage in derivatives transactions.

One asset manager from a large-scale rural commercial bank said to STCN.com that the recent launch of new supplementary WMP regulations would bring an end to the provision of structured deposits by “unlicensed cowboys.”

“There are very few rural commercial banks that have obtained permission to engage in derivatives trades,” said the source. “We’re alright, as we have basic qualifications for derivatives products, so are still able to issue [structured deposits].

“We still don’t know, however, whether or not in future we’ll be required to re-apply for specific licenses for derivatives transactions…we can only wait for subsequent regulations.”

Data from the Securities Association of China (证券业协会) on the over-the-counter securities market indicates that commercial banks accounted for 61.14% of new options trades in July, with fund companies and their subsidiaries accounting for 17.58%.

Chinese banks are estimated to have served as buyers for around 23.342 billion yuan in options that month.

Related stories

Will Regulators Target Switch from WMP’s to Structured Deposits by Banks?

Structured Deposits See Soaring Growth amongst Chinese Banks

Banks Use Principal-guaranteed Structured Deposits as Replacements for WMP’s 

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