Structured deposits in China have seen a sizeable contraction in 2019, following heavy pressure from regulators concerned about their use by commercial banks as a covert means of providing higher, steady returns.
Data from the Chinese central bank indicates that structured deposits have fallen from a peak of 11.23 trillion yuan in February 2019 to 10.46 trillion yuan in August.
Structured deposits saw an estimated 2.6 trillion yuan surge in 2018, as Chinese commercial banks turned to them as an alternative means of tapping retail funds, once asset management regulations launched in February 2018 removed guaranteed returns for wealth management products (WMP).
Domestic analysts anticipated a heavy crackdown on the use of structured deposits after the February peak, and in particular “fake” structured deposits that make use of rigged derivatives transactions to provide guaranteed, higher returns.
The crackdown is expected to continue, with the central government financial authorities adopting measures to better standardise and regulate the use of structured deposits, particularly in the wake of loan prime rate (LPR) reforms.
The China Banking and Insurance Regulatory Commission (CBIRC) issued the “Notice On Undertaking Rectification Work in Relation to Banking and Insurance Institutions Harming the Rights and Interests of Consumers” (关于开展银行保险机构侵害消费者权益乱象整治工作的通知) on 10 October.
The Notice defines the use of fake structured deposits to replace guaranteed principal wealth management products as a form of commercial conduct which harms consumer interests.
“Fake structured deposits are covert high-interest savings,” said once source from the banking sector to 21st Century Business Herald.
“The goal of standardisation is to reduce deposit costs…if deposit costs do not fall, then it’s very difficult for lending rates to decline.”
