Structured Deposits of Chinese Banks See Record Drop of over 1 Trillion Yuan in October

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Structured deposits at Chinese banks have posted a record monthly drop for 2020 in October after rising to unprecedented levels earlier in the year.

As of the end of October the outstanding structured deposit balance of Chinese banks stood at 7.944745 trillion yuan, for a drop of 1.030432 trillion yuan compared to the end of the previous month, according to data from the Chinese central bank.

The October figure marks an on-month decline of 11.48%, and a YoY drop of 23.21%, as well as the sixth consecutive month of decline since May.

Chinese regulators previously expressed concern over a rise in the structured deposit balance to record levels in the first half of 2020, and the potential for investors to use the products to engage in interest rate arbitrage amidst a loosened monetary environment during the COVID-19 pandemic.

Regulators have also expressed concern that Chinese banks are making use of “fake” structured deposits that offer high, stable returns in order to attract more funds from retail customers, after the launch of asset management rules at the start of 2018 undermined the guaranteed returns on wealth management products (WMP’s).

During the first four months of 2020 structured deposits saw continuous growth to breach the 12 trillion yuan threshold in April.

Small and medium-sized lenders were a core driver of this growth, with their structured deposit balance reaching 7.91 trillion yuan as of the end of April, for a 1.72 trillion yuan rise since the end of 2019.

Authorities first began to crack down in June, with reports emerging that banks were subject to window guidance pressuring them to bring the scale of outstanding structured deposits to less than the volume at the start of the year by the end of September, and less than two thirds this amount before the end of the year.

A report from Guangfa Securities indicates that if Chinese banks are to satisfy the annual target of a one third reduction they will need to reduce their structured deposit balances by at least 773 billion yuan each month in November and December, with the monthly figure for large-scale banks estimated to be around 386.3 billion yuan and for small and medium-sized lenders around 386.7 billion yuan.

“This scale is narrower than previously, and pressure to reduce is on the decline,” said the report.

Related stories:

Structured Deposits Drop Below 10 Trillion Yuan, Crimping Liquidity, as Regulators Step up Pressure

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

Chinese Banks Told to Reduce Structured Deposits by One Third Before End of 2020 Due to Interest Arbitrage Fears

Regional Authorities Step up Scrutiny of Structured Deposits

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