BEIJING/SHANGHAI (Reuters) – China’s banking and insurance watchdog is telling banks to scale back on high-yield structured deposits marketed to companies, three sources told Reuters on Wednesday, seeking to redivert funds to real economic activity.
Outstanding structured deposits jumped 26% to 12.14 trillion yuan ($1.72 trillion) in the first four months of 2020, partly driven by firms who borrowed cheaply from banks and used the proceeds to invest in high-yield deposits.
Some banks received verbal guidance from the regulator this week to downsize their structured deposits by the end of 2020, said the three sources who were familiar with the matter.
At least one mid-sized bank had been told to cut the size of its structured deposits by one-third by the end of this year, two of the sources said.
Chinese banks have aggressively marketing structured deposits – a hybrid that combines traditional deposits with higher-return investment products – to attract more funds.
But the yields they promise hurt their profitability, making the banks reluctant to reduce lending rates, which Beijing wants them to do in order to boost a virus-hit economy that contracted in the first quarter for the first time in decades.
The curb on the structured deposits business is nationwide, although the rules vary according to the size of the bank, the sources said.
Some joint-stock banks and smaller privately-owned lenders have already stopped selling structured deposits per previous guidance from the regulator, two of the sources said.
The China Banking and Insurance Regulatory Commission (CBIRC), the top banking watchdog, did not immediately reply to Reuters requests for comment.
Bloomberg News, citing sources, reported on Tuesday that CBIRC was acting to scale down structured deposits at banks.
(Reporting by Cheng Leng, Kevin Huang in Beijing, and Engen Tham in Shanghai; Additional reporting by Rong Ma; Editing by Ryan Woo and Kim Coghill)