Banks compete fiercely for year-end deposits

To meet the terms of their year-end regulatory review, many banks have been pushing sales of high-yield wealth management products, a practice that can help boost bank deposits, analysts said Monday, but that also involves risks for the banking sector.

"We will sell a new wealth management product this afternoon, with a 5 percent annualized interest rate," a customer manager at Bank of Communications told the Global Times Monday.

Other banks are making even more generous offers to tempt customers.

One State-owned commercial bank offered as much as 5,000 yuan in daily interest payments for a deposit of 1 million yuan, equal to a 15 percent monthly interest rate, China National Radio reported, citing unidentified sources.

Analysts said that banks are trying to boost their deposits in order to meet the year-end regulatory supervision of key performance indicators such as their loan-to-deposit ratio, which is set at 75 percent.

It is a violation of regulations if banks offer interest rates higher than the ceiling rate, which is 10 percent above the benchmark official interest rate, and banks will be fined heavily if this is found to be the case. But this regulation does not apply to wealth management products.

Banks often sell these wealth management products cooperating with funds and large corporate firms that have accounts in the bank, Hu Yaokun, a financial and banking partner with Beijing-based Adfaith Management Consulting, told the Global Times Monday.

The funds raised from these products are then credited to the clients' accounts, and also count as deposits of the bank, Hu said.

However, the issuance of wealth management products presents growing risks for the sector as the funds sourced through this channel are off the radar of regulators, according to a recent report by credit rating agency Fitch Ratings.

"The interest rates can be set freely by banks and many of the assets and liabilities reside off-balance sheet," Fitch said.