China's lenders in push to lure depositors

Industrial and Commercial Bank of China Ltd's booth at a financial industry expo in Shanghai in November. Provided to China Daily

Chinese banks are engaged in a war to attract deposits as increased consumer spending at the end of the year is draining liquidity and as regulators are conducting checks, industry observers have said.

Lenders, especially smaller banks, are raising the returns on their wealth management products in a bid to attract depositors.

In the last week of November, a total of 423 wealth management products hit the market with an average promised annualized return of 5.3 percent, the Beijing Evening News reported. That figure was up 0.13 percentage point from the previous week and compares with 4.47 percent for the same period last year.

In the first week of December, the annualized average return of the 439 products launched grew by another 0.13 percentage point to 5.43 percent. The same figure in the year-ago period was just 4.47 percent.

Bank of China Ltd, one of China's Big Four State-owned banks, recently launched a two-year product with a 6.5 percent annualized rate. The minimum investment is just 100,000 yuan ($16,467).

In China, financial institutions traditionally have liquidity issues toward the end of the year.

The China Banking Regulatory Commission usually conducts an annual year-end review to check if its requirements were met, including those on deposit-to-loan ratios and core capital adequacy ratios. To fulfill the requirements, banks compete with each other for deposits. Moreover, Chinese consumers tend to spend more ahead of the Lunar New Year, which depresses deposits.

"This year, things are tighter because the central bank has made it pretty clear that there won't be easy money anymore," said Zhang Qi, an analyst at Haitong Securities Co Ltd.

The People's Bank of China halted money-market operations last week, resulting in a net 37 billion liquidity drain in the banking system.

The war for cash extended into the interbank money market. On Wednesday, the one-month repo rate touched 8 percent. The three-week, one-month and two-month repo rate closed at 6.3 percent, 7.4 percent and 7.2 percent, respectively. Those were the highest levels since June's credit crunch.

IPOs in China are slated to resume in January after a 14-month hiatus, and many believe that the tighter bank liquidity was partly caused by investors taking out cash from banks in preparation of new share purchases. The China Securities Regulatory Commission said earlier that at least 50 companies will be listed in January.

Caijing magazine quoted an anonymous source at China Pacific Insurance Group as saying that the new IPOs will shift funds away from banks, but that it won't happen so soon. The current rate hike is seasonal and caused by short-term events, the source added.