Bank of Communications hits back at new deposit constraint
Bank of Communications has shot back at a new constraint on bank deposits, calling the rule issued jointly by three mainland regulators an obstacle to growing deposits and saying banks would simply find a way around it.
Bank of Communications has shot back at a new constraint on bank deposits, calling the rule issued jointly by three mainland regulators an obstacle to growing deposits and saying banks would simply find a way around it.
The People's Bank of China, the Ministry of Finance and the China Banking Regulatory Commission issued a notice on Friday meant to reduce major fluctuations in deposits at the end of each month as banks scramble to meet regulatory requirements such as the 75 per cent loan-to-deposit ratio.
The notice, posted on the CBRC website, said deviations in deposits on the final day of the month could not exceed 3 per cent of a bank's monthly deposit average.
However, Bank of Communications' Finance Research Centre in Shanghai said in a statement drafted on Sunday that the new rule would not only hinder some banks' ability to collect deposits, but banks would also find a way around it.
"Under the constraints of slowing deposits and loan ratios, banks cannot change the behaviour of pulling deposits [on to balance sheets]," it said, adding that some banks could start bolstering deposits mid-month to circumvent the new rule.
Mainland banks are increasingly competing with non-financial-sector firms, such as internet-based lenders, for deposits. At the same time, they have become accustomed to pulling off-balance-sheet funds on to their balance sheets as one way of increasing deposits at the end of the month and quarter to meet the CBRC's loan-to-deposit ratio requirements. The practice increases the volatility of the money market and can lead to a spike in mainland interbank rates.
Yuan-denominated deposits fell by 1.98 trillion yuan (HK$2.5 trillion) in July to 111.6 trillion yuan, the largest month-on-month fall in deposits since 2000, when the data became available. At the time, experts said the huge difference was the result of a high rate of "artificial deposits" that banks brought on to their balance sheets at the end of June.
The Bank of Communications statement also said regulators should change the calculation of - and eventually scrap - the loan-to-deposit ratio, a familiar call from the sector.
