Caixin
Dec 26, 2020 04:01 AM
FINANCE

Zhejiang Banking Regulator Bans Online Deposit Products

Major Chinese fintech companies including Ant Group have pulled online deposit products.
Major Chinese fintech companies including Ant Group have pulled online deposit products.

After China’s biggest fintech companies removed savings products linked to regional banks from their online platforms, a local regulator explicitly halted jointly operated deposit business between online platforms and commercial banks.

In a notice issued Thursday, the Zhejiang Bureau of the China Banking and Insurance Regulatory Commission (CBIRC) expressly requires that all types of banking institutions within its jurisdiction shall not accept deposits through third-party internet platforms or through cooperation with other third-party intermediaries. Existing deposit products shall be removed from the market immediately and the cooperation shall be terminated, the regulator said.

The regulatory move came after the country’s dominant online fintech platform Ant Group Co. Ltd. and the financial services arms of tech giants Tencent Holdings Ltd., JD.com Inc., Baidu Inc., Didi Chuxing Technology Co. Ltd., Meituan, Xiaomi Corp., and Lufax Holding Ltd., which is backed by financial conglomerate Ping An Insurance (Group) Co. of China Ltd., stopped offering products that allow consumers who use their online platforms to make deposits with brick-and-mortar lenders.

Through joint deposit offerings, banks provide products and services, and online fintech platforms provide product information and the purchase interface. Smaller regional lenders are limited in where they can do business by regulations that only allow them to operate in the geographical area covered by their license. Fintech companies and their online platforms, which operate nationwide, have allowed the banks to skirt those limits. By partnering with fintech companies that have huge user bases nationwide, the banks can solicit fixed-term, high-yield deposits from savers anywhere in the country.

China’s regulators have stepped up scrutiny of fintech companies this year, especially since Ant Group’s aborted IPO in early November, as the government continues its campaign to contain risks in the financial sector. Regulators are concerned that such joint deposit products use non-transparent means to boost the interest rates they pay -- by shortening term deposit maturities or issuing coupons and cash rewards -- and they abuse “deposit insurance” labels in marketing.

In an article published in November, the central bank’s newly appointed financial stability director Sun Tianqi called for an update on risk management and regulations on online deposit products. Earlier this month, Sun said at a fintech forum that such business is essentially like “driving a car without a license.”

The rise of online deposit products has disrupted regional banks’ deposit markets, has raised their lending costs, increased the vulnerability of bank debt structure, and put more pressure on their liquidity management, the Zhejiang regulator said in the notice.

Most online deposit products have maturities of three or five years. The highest annualized interest on a three-year deposit product is 4.125%, while the highest return for five years is 4.875%, nearing the upper limit of the central bank’s guidelines, Sun wrote (link in Chinese) last month.

The Zhejiang regulator requires banks to strictly follow relevant provisions limiting interest rates on deposits. It bans them from shortening term deposit maturities or issuing interest coupons or cash rewards to effectively raise deposit interest rates. And the regulator said banks may not lower the minimum threshold for large certificates of deposit through group sales.

In addition to the ban on internet deposits, the regulator also prohibited banks from cooperating with note intermediaries.

Contact reporter Denise Jia (huijuanjia@caixin.com)

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