Structured Deposits in China Plunge over 42%

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Structured deposits of Chinese banks have seen a precipitous decline following the launch of a crack down on use of the instruments due to concerns that they were playing a role in interest rate arbitrage during the peak of the COVID-19 pandemic.

As of the end of March 2021 the structured deposits of Chinese-invested national banks stood at 6.668183 trillion yuan, for an on-month decline of 4.69% and a YoY plunge of 42.85%, according to data released by the Chinese central bank.

The “2021 April Bank Structured Deposit Report” (2021年4月银行结构性存款报告) released by Rong360 further indicates that the average maximum expected yield for structured deposits was 3.6% that month, for an on-month decline of 17 basis points.

Banking sector analysts say that given heightened regulatory requirements for structured deposits there will be little room for a rebound in future, while small and medium-sized banks will account for an increasingly modest share of the outstanding balance.

Chinese 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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