Structured Deposits of Chinese Banks Fell by Nearly One Third in 2020, Dropped 5.7 Trillion Yuan from April Peak

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The structured deposits of Chinese banks saw a huge decline in 2020 after authorities stepped up pressure on use of the products due to concerns over regulatory arbitrage during the COVID-19 pandemic.

In December 2020 the structured deposits balance of Chinese commercial banks fell by 1.02134 trillion yuan to to 6.4442656 trillion yuan, for the eighth consecutive month of decline, according to data from the People’s Bank of China (PBOC).

The structured deposit balance stood at 9.598057 trillion yuan at the start of 2020, meaning that the full year decline was approximately 3.154 trillion yuan, while the cumulative decline from the peak reading of over 12 trillion yuan in April was around 5.7 trillion yuan.

Chinese regulators previously set the goals of reducing the structured deposit balance to less than where it stood at the start of 2020 by 30 September, and to less than two thirds where it stood at the start of 2020 by the end of the year. Chinese banks ended up falling 44 billion yuan short of the final goal.

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

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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