Chinese Banks Are “Quenching Their Thirst with Poison” by Selling Depository Products via Online Finance Platforms: PBOC Official


Chinese regulators have turned their attention to the use of online lending platforms by smaller banks to draw funds from retail customers via the sale of depositary products.

Sun Tianqi (孙天琦), head of the Chinese central bank’s financial stability department, said that information from 11 online finance platforms indicates that they are selling deposit products provided by more than 50 banks, the vast majority of whom are small and medium-sized lenders.

“Some banks have seen rapid growth in the acceptance of deposits via online platforms,” said Sun at the “Digital Finance Regtech Exploration and Application Summit” (数字金融领域监管科技探索与应用研讨会).

“Certain high-risk institutions are using online platforms to absorb deposits, and for some the share is already up to 70% of deposits. Other banks are depending upon platform deposits to supplement liquidity gaps, significantly replacing interbank financing.

“These high-risk institutions have comparatively weak ability to withstand risk, and an excessively high share of deposits from online platforms further increases the instability of their liabilities. They are drinking poison to quench their thirst, and the hidden liquidity hazards are pronounced.

“For some problematic small and medium-sized banks, when asset liquidity and liability liquidity come under pressure simultaneously, they rely upon deposits from online platform to enable them to maintain turnover of outstanding liabilities and support asset expansion.”

Sun points out that the products sold by banks via online platforms are mainly fixed term deposits, offering rates which are close to the ceilings set by national self-disciplinary pricing mechanisms. These include maximum rates of 2.25% for 1-year deposits, 4.125% for a 3-year deposit and 4.875% for 5-year deposits.

A report from Securities Daily previously found however that the rates of return for depository products sold by banks via online platforms can run to over 7% when various “subsidies” and reward policies are included.

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