Banking & Finance

Shanghai banks offer customers rice, cooking oil to attract deposits as funding dries up

From cooking oil and rice to public transport cards, the city’s small and medium lenders are keen to attract deposits to boost profitability

PUBLISHED : Wednesday, 27 December, 2017, 9:34am
UPDATED : Wednesday, 27 December, 2017, 10:40pm

From cooking oil and rice to public transport cards, Shanghai’s smaller banks have been aggressively doling out free gifts – on top of higher returns – in an attempt to attract larger deposits before the year is out.

In a branch of Huaxia Bank in downtown Shanghai, the mid-sized lender is wooing savers with a one-year saving rate of 2.22 per cent, almost 50 per cent higher than the benchmark rate, for deposits of more than 10,000 yuan (US$1,520).

On top of that, the bank is offering a free public transport card worth 100 yuan if the deposit is more than 50,000 yuan. For those who save at least 100,000 yuan at the bank, they can take home a free public transport card worth 300 yuan. The incentive is further doubled to 600 yuan if the saving is above 200,000 yuan.

Smaller banks are under pressure to shore up deposits for stable and low-cost capital
Zhao Yarui, senior researcher, Bank of Communications

The public transport card is a necessity for most commuters as a convenient means to pay for parking fees, petrol, and fares for bus, metro, ferry and taxi in Shanghai.

Huaxia’s promotion reflects the funding crunch that’s befallen China’s smaller, less capitalised lenders, where deposits that accounted for as much as 78 per cent of total liabilities and equity in 2008 had fallen to less than 50 per cent as of June, according to Fitch Ratings’ data. As a result, smaller banks had been forced to go to interbank borrowings which are most costly and less stable, as well as off-balance sheet wealth management products, which are risky.

Huaxia’s offer is “quite a bargain,” as the free transport cards are only available to new savers approaching year-end, according to a client relationship manager at the branch, who gave only her surname, Zhou.

Just 150 metres away from the lender, a smaller rival, Bank of Ningbo, is advertising a similar programme, giving away free soybean oil or rice to lure savers. Bank of Ningbo is offering interest rates of up to 1.45 times the one-year benchmark savings rate.

Larger, state-owned rivals appear less aggressive in marketing their larger deposit schemes. Both Industrial & Commercial Bank of China, the nation’s largest bank, and Agricultural Bank of China, the third largest, are offering returns that are just 1.3 times higher than the one-year benchmark savings rate. And they are not offering free gifts.

The aggressive tactic by smaller banks to incentivise savings reflects the growing significance of deposits for banks against the backdrop of Beijing’s appeal for lenders to deleverage. The push for deleveraging helped shore up market rates in interbank markets and made it more costly for smaller banks to secure funding, analysts said.

“Smaller banks are under pressure to shore up deposits for stable and low-cost capital,” said Zhao Yarui, a senior researcher at Bank of Communications in Shanghai.

“In comparison, big banks in China are better funded thanks to their vast network and large client base and thus better equipped to improve their balance sheets.”

The big banks with ample deposits can actually benefit from charging higher rates in the interbank market as net lenders, and hence shore up their net interest margins.

Net interest margin is the difference between the interest income generated by banks and the interest paid out to savers, as a proportion of its interest bearing assets. It is a key measurement of profitability for banks, as the higher the margin, the stronger their profitability.