Structured Deposits Exceed 11 Trillion Yuan, Chinese Regulators Crack Down on Covert High Interest Returns

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China’s financial authorities are expected to crack down on the use of structured deposits by banks to compete for funds by covertly providing higher returns to investors, as the structured deposit balance surpasses the 11 trillion yuan threshold.

Structured deposits have recently seen roaring growth, following the launch of asset management regulations in 2018 that made it harder for banks to compete for funds using wealth management products by removing their implicit guarantees.

Central bank data indicates that the structured deposit balance of Chinese commercial banks was 9.62 trillion yuan as of the end of 2018, for an increase of 2.66 trillion yuan, or 38%, compared to the balance of 6.95 trillion yuan at the end of 2017.

The structured deposit balance of China’s commercial banks reached 11.19 trillion yuan at the end of March, following an increase of 1.57 trillion yuan in the first quarter alone.

Small and medium-sized banks in China have served as the biggest driver in structured deposit growth.

Central bank data indicates that the structured deposit balance of large-scale national banks was 3.9 trillion yuan as of the end of the first quarter this year, for a 34.87% share. By contrast the structured deposit balance of small and medium-sized national banks accounted for a 65.13% share of the total.

As of the end of March structured deposits as a share of total deposits were 4.43% for large-scale banks, yet 8.99% for small and medium-sized banks.

The surging growth in structured deposits, especially amongst smaller banks, has triggered concern amongst Chinese regulators that banks are using “fake structured deposits” to covertly provide higher returns to investors, in order to more effectively access funds.

This concern has prompted the China Banking and Insurance Regulatory Commission (CBIRC) to recently issue the “Notification Concerning the Undertaking of Work to ‘Consolidate the Results of Combating Malfeasance and Expedite the Development of Compliance'” (关于开展“巩固治乱象成果促进合规建设”工作的通知).

The notification marks the first time that CBIRC has called for the inspection of the structured deposits of banks, to determine if they are “fake structured deposits” being used to provide higher returns.

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