Structured Deposits at Chinese Banks Drop to New Low for 2021 in May

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Outstanding structured deposits of Chinese banks have further fallen to a new low for the year following a crackdown on use of the instruments by financial regulators jittery over their risk implications.

The latest data from the Chinese central bank indicates that as of the end of May the structured deposit balance of national commercial banks in China was 6.351095 trillion yuan, for an on-period decline of 3.07%, and a decline acceleration of 1.34 percentage points compared to the preceding month.

May marks the first time since the start of 2021 that the structured deposit balance has fallen below the reading at the end of 2020.

Domestic analysts say that Chinese regulators have continued to maintain heavy pressure on use of the instruments, and that a large-scale squeeze on structured deposits is a necessary move on the part of commercial banks.

They forecast that Chinese authorities will continue to strengthen deposit regulation, target the illicit use of high-interest rates by depository institutions to compete for funds, and further standardise pricing of deposit rates.

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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