FINANCE

Chinese Banks’ Cash Flow Plummets After Crackdown on High Deposit Rates

Published: Sep. 11, 2024 8:26 p.m. GMT+8

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Chinese banks are under strain as their deposits shrink in the wake of a regulatory crackdown on offering deposit rates higher than regulatory caps.

In the first half of the year, many Chinese mainland-listed commercial banks saw a decline in their net cash flow generated from operating activities — a key indicator of lenders’ liquidity — Caixin calculations based on their interim reports show.

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Chinese banks are experiencing strained liquidity due to a decline in deposits following regulatory measures to curb high deposit rates.
Five of the "Big Six" banks saw significant drops in net cash flow from operating activities, with Industrial and Commercial Bank of China reporting the largest drop.
Shrinking deposits are partly due to regulatory crackdowns on noncompliant high interest rates and a shift of savings to wealth management products in a recovering market.

AI generated, for reference only

Who’s Who

Postal Savings Bank of China Co. Ltd.: Postal Savings Bank of China Co. Ltd. was the only one among China’s “Big Six” state-owned banks to maintain a positive net cash flow generated from operating activities in the first half of the year, with about 131 billion yuan ($18.4 billion). This represented a year-on-year increase.

Industrial and Commercial Bank of China Ltd.: Industrial and Commercial Bank of China Ltd., the largest of China’s “Big Six” state-owned banks, reported the most significant decline in net cash flow generated from operating activities, plummeting by nearly 1.3 trillion yuan to approximately 27 billion yuan. The bank attributed this significant drop to a decline in client deposits.

Agricultural Bank of China Ltd.: Agricultural Bank of China Ltd. reported a year-on-year decrease of nearly 1.1 trillion yuan in net cash flow generated from operating activities during the first half of the year. This decline is attributed to shrinking deposits following regulatory crackdowns on offering deposit rates higher than permissible caps.

China Construction Bank Corp.: China Construction Bank Corp. posted a year-on-year decrease of more than 500 billion yuan in net cash flow generated from operating activities in the first half of the year, as part of a broader trend of declining deposits among Chinese banks. This decline is attributed to regulatory crackdowns on offering preferential deposit interest rates above regulatory caps.

Bank of China Ltd.: Bank of China Ltd. experienced a shift from a net inflow to a net outflow in their net cash flow generated from operating activities during the first half of the year, driven by government moves to enforce regulatory caps on deposit rates. This has contributed to liquidity concerns among lenders.

Bank of Communications Co. Ltd.: Bank of Communications Co. Ltd. experienced an increase in net outflow for the first half of the year due to regulatory crackdowns on offering high deposit rates, which led to shrinking deposits. This contributed to worsening cash flows and concerns about liquidity among Chinese banks.

China Citic Bank Corp. Ltd.: China Citic Bank Corp. Ltd. reported net outflows in the first half of the year, a trend observed among other national joint-stock lenders. The outflows are mainly due to shrinking deposits, driven by regulatory crackdowns on high interest rates and a shift of personal savings to wealth management products.

China Everbright Bank Co. Ltd.: China Everbright Bank Co. Ltd., a national joint-stock lender, reported a net outflow of cash in the first half of the year. This was attributed to government measures to curb banks from offering noncompliant high interest rates on deposits, which led to a loss of savings.

China Minsheng Banking Corp. Ltd.: China Minsheng Banking Corp. Ltd., a national joint-stock lender, reported net outflows in the first half of the year. This decline in cash flow is attributed to efforts by regulators to stop banks from offering noncompliant high deposit interest rates, which led to a reduction in corporate savings.

AI generated, for reference only

What Happened When

the first quarter of 2024：: The key profitability metric for lenders hit a 13-year low at 1.54%.

April 2024：: A central bank-backed industry group ordered banks to stop wooing depositors with noncompliant high-interest rates.

the first half of the year 2024：: Many Chinese mainland-listed commercial banks saw a decline in their net cash flow generated from operating activities.

the first half of the year 2024：: Among China’s 'Big Six' state-owned banks by assets, only Postal Savings Bank of China Co. Ltd. managed to keep the gauge positive — at about 131 billion yuan ($18.4 billion) for the period — with a year-on-year increase.

the first half of the year 2024：: Industrial and Commercial Bank of China Ltd., reported the biggest drop of nearly 1.3 trillion yuan to approximately 27 billion yuan.

the first half of the year 2024：: Agricultural Bank of China Ltd. and China Construction Bank Corp. posted year-on-year decreases of nearly 1.1 trillion yuan and more than 500 billion yuan, respectively.

the first half of the year 2024：: Bank of China Ltd. experienced a shift from a net inflow to a net outflow, and Bank of Communications Co. Ltd. saw the net outflow widen.

the first half of the year 2024：: Recovery of the wealth management market driven by a bond bull run caused some personal savings to shift to wealth management products.

AI generated, for reference only