Chinese Regulators Target Smart Deposits, Structured Deposits


Chinese banks plan to bring an end to the sale of “smart deposits” following pressure from regulators concerned about lenders competing for funds via the covert provision of higher returns.

Several sources from the Chinese banking sector said to 21st Century Business Herald that regulators convened a meeting at the start of May demanding that the industry adopt self-disciplinary measures to clean up their smart deposit operations.

In China smart deposits are demand deposits for which interest is calculated on a graded basis in accordance with average daily scale.

A source from a municipal commercial bank in eastern China said that regulators have called for the big state-owned banks to reduce their smart deposit balance to zero within the space of six months.

Another source from a large state-owned bank in southern China said that clean up of smart deposits is still a form of industry self-discipline, with no further products to be provided following the maturation of outstanding products.

An executive from a joint-stock bank in southern China said that it had already suspended the provision of demand deposits for which interest is calculated on the basis of daily average scale, but that it had not yet received a notice calling for clean up of structured deposits

The report comes just after the China Banking and Insurance Regulatory Commission (CBIRC) issued a directive on 17 May announcing that it would conduct inspections of banks for the use of “fake” structured products to covertly provide higher interest rates.

Analysts believe that the goal of China’s banking regulators is not just to reduce the scale of smart deposits and structured deposits in the sector, but to target the use of high interest rates by banks to compete for deposits.

Structured deposits saw surging growth starting in 2017, just as the Chinese central bank flagged the launch of new asset management rules that would remove the “implicit guarantees” undergirding the wealth management products that smaller banks had used to compete for funds.

Data from the People’s Bank of China (PBOC) indicates new structured deposits totalled 1.79 trillion yuan and 2.66 trillion yuan in 2017 and 2018 respectively, bringing the total to in excess of 10 billion yuan.

During the first four months of 2019 structured deposits continued to see robust growth, with new deposits reaching 1.52 trillion yuan.