Feb 05, 2021 04:59 AM

Central Bank Bars Out-of-Region Deposits for Regional Banks

China’s regulators have stepped up scrutiny of fintech companies and online deposit products since last year.
China’s regulators have stepped up scrutiny of fintech companies and online deposit products since last year.

After banning commercial banks from selling deposit products through third-party online platforms, China’s central bank further strengthened regulation of deposit products, barring regional banks from seeking deposits from clients outside their operating regions.

In a video conference Thursday, the People’s Bank of China (PBOC) said orderly deposit market competition is a matter of public interest and the central bank will strengthen monitoring and management of nonstandard innovative deposit products to protect consumers.

Regional banks should be urged to focus on serving local customers and should not accept deposits from clients outside their regions, the central bank said, without defining nonlocal clients. When deciding whether a client is local or from another region, it’s not clear whether the determining factor should be the client’s current residence or residential registration location, known as hukou, several bankers said.

The PBOC and the banking regulator issued a notice Jan. 15 formally barring banks from selling personal fixed deposit products online via third-party platforms, citing a recent surge of online deposits that exposed regulatory loopholes and financial risks.

The regulatory move came after the country’s top online fintech platforms stopped offering products allowing consumers using online platforms to make deposits with brick-and-mortar lenders following criticism from regulators. The platforms that so responded include Ant Group Co. Ltd. and the financial services arms of tech giants Tencent Holdings Ltd., 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.

The use of third-party platforms to sell deposit products has been a high-growth area for the booming fintech industry in recent years. Online deposits usually promise higher interest rates to attract customers, which regulators worry would raise banks’ cost of capital and lead to systemic risks.

To cover higher interest costs, banks need to increase lending rates, which drives up costs in the real economy and increases the credit risk borne by the financial system. Regulators are concerned that such joint deposit products use nontransparent means to increase the interest rates they pay — by shortening term deposit maturities or issuing coupons and cash rewards — and abuse “deposit insurance” labels in marketing.

China’s regulators stepped up scrutiny of fintech companies last year, especially since Ant Group’s aborted IPO in early November, as the government continues a campaign to contain risks in the financial sector.

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Under the new rules, banks may still cooperate with third-party platforms to open Type II accounts for consumers, which are primarily used for consumption. Banks are also allowed to provide deposit products through their own online channels, such as the banks’ apps.

Contact reporter Denise Jia ( and editor Bob Simison (

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