China Bans Regional Banks from Accepting Cross-border Deposits After Curbing Cross-regional Online Lending


The Chinese central bank has prohibited regional banks from accepting deposits in cities where they do not have physical branches, in a bid to stymie the risk issues faced by provincial lenders and contain their breakneck expansion.

The People’s Bank of China (PBOC) announced in its 2020 fourth quarter monetary policy execution report that starting from 2021 it would include the acceptance of deposits from “other areas” in the macro-prudential assessments (MPA) of local legal person banks in China, as well as “ban the use of various channels to handle deposits in other areas.”

“Existing outstanding deposits will be settled upon their natural maturation,” said the report.

PBOC’s report drew considerable attention to the concept of “other area deposits” (异地存款) and reasons why the central bank chose to prohibit them.

The report defines “other area deposits” as “banks providing accounts to accept deposits in cities where they have not established actual branches.”

Under the definition when customers use online banking or mobile banking to open accounts with a regional bank, as long as the bank has a physical branch in the location of the customer at the time the account is opened such deposits will not be considered “other area deposits.”

An analyst speaking to PBOC’s official news publication said that the reason for the ban is to restrict the “rampant expansion” of regional legal person banks, and ensure that they focus upon their original purpose of servicing their local economies.

At the end of February the China Banking and Insurance Regulatory Commission (CBIRC) also put strict restrictions upon the cross-border online lending operations of Chinese commercial banks.

 The “Notice Concerning Further Standardising Commercial Bank Online Loan Operations” (关于进一步规范商业银行互联网贷款业务的通知) issued on 20 February stipulates that “regional legal person banks that engage in online lending operations should restrict their service to local customers, and are not permitted to engage in online lending operations outside their place of registration.”.

The launch of restrictions on the cross-border operations of Chinese regional banks follows a highly tumultuous two year period for the provincial lending sector, including a string of bank runs around the country.

In May 2019 the Chinese government implemented its first forcible acquisition of a domestic bank in modern history, with the takeover of Inner Mongolia’s Baoshang Bank due to severe credit issues.

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