Structured Deposits Drop by 4.68 Trillion Yuan During Seven Months of Regulatory Crackdown

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The structured deposits of Chinese banks have seen a plunge over the past seven months following a crackdown by regulators concerned about explosive growth in use of the instruments during the COVID-19 outbreak in China.

As of the end of November China’s structured deposit balance stood at 7.46 trillion yuan, for decline of 480.7 billion yuan compared to the end of October.

Regulators previously set the target of reducing the national structured deposit balance to less than 9.6 trillion yuan – the reading at the start of the year – by 30 September 2020. They also set the target of reducing the structure tired deposit balance to less than two thirds the reading at the beginning of the year (being 6.4 trillion yuan) by the end of 2020.

This means that commercial banks will need to reduce the structured deposit balance by a further 1.06 trillion yuan in December in order to satisfy the full year regulatory target.

Chinese regulators launched a crackdown on structured deposits in June, due to concern over a sharp rise in the nationwide balance to record levels in the first half of 2020.

Reports at the time speculated that investors were using the products to engage in interest rate arbitrage amidst a loosened monetary environment during the COVID-19 pandemic.

During the first four months of 2020 structured deposits saw continuous growth to breach the 12 trillion yuan threshold in April, yet subsequently fell by 4.68 trillion yuan in total during the period from May to November, as regulatory pressure took effect.

Regulators have also long 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).

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