Structured Deposits of Chinese Banks Drop over One Trillion Yuan in June Following Interest Rate Arbitrage Concerns

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China’s structured deposit balance fell by over one trillion yuan in the month of June, after regulators put pressure on growth due to concerns over their use for interest rate arbitrage.

Data from the Chinese central bank indicates that as of the end of June the structured deposit balance of Chinese commercial banks was 10.83 trillion yuan (approx. USD$1.55 trillion), for a decline of over one trillion yuan compared to the reading of 11.84 trillion yuan at the end of May.

In the month of May structured deposits of Chinese commercial banks fell by just 300.9 billion yuan.

Small and medium-sized banks are heavily represented amongst structured deposits, seeing a decline of 774 billion yuan in their structured deposit balance in June, as compared to 237 billion yuan for the big banks.

“Since the start of the year small and medium-sized banks have seen a marked rise in their share of structured deposits, indicating that in an economic environment impacted by the pandemic, small and medium-sized banks were under greater pressure to grab deposits,” said Ming Ming (明明), a fixed-income analyst with CITIC Securities.

Chinese regulators previously expressed concern about a rise in the structured deposit balance to record levels earlier in 2020, and the potential for investors to use the products to engage in interest rate arbitrage amidst measures to keep the economy afloat during the COVID-19 pandemic.

Data from the Chi­nese cen­tral bank in­di­cates that as of the end of the first quar­ter the struc­tured de­posit bal­ance of com­mer­cial banks was 11.67 tril­lion yuan, for an in­crease of 2.07 tril­lion yuan com­pared to the end of last year.

Structured deposits have seen a surge in popularity over the past several years, following the launch of asset management regulations at the start of 2018, which removed implicit guarantees on bank wealth management products (WMP).

WMP had previously served a popular means for smaller banks to access retail funds by dodging interest rate caps.

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