Chinese banks have effectively raised deposit rates by rolling out wealth management products with attractive returns, a senior central bank official said in remarks published on Thursday. "Some financial institutions have sharply raised the yields on wealth management products, which are increases in deposit rates in the disguised form," Li Dongrong, an assistant central bank governor, said in a speech.
"This has led to frequent transfers of large deposits between banks and disrupted the financial order," Li said in the speech posted on the central bank's website (www.pbc.gov.cn). Chinese banks, chafing under the government's sustained credit curbs, are rushing to pump out high-yielding wealth management products to woo depositors and channel credit to preferred clients.
The central bank tightly controls bank interest rates in part to protect banks and shield the broader economy from any fallout among lenders. It regulates the rate market by setting a ceiling on deposit rates and a floor on lending rates, giving banks a guaranteed margin of some 300 basis points.
The central bank is using more market-based tools, such as open market operations and bank reserve requirements, to adjust banking liquidity, influence money-market rates and "indirectly" affect bank lending rates, Li said. He reiterated that the central bank aims to develop the Shanghai Interbank Offered Rate (SHIBOR) into the benchmark rate for pricing financial instruments. In 2010, the pricing some 75 percent of money-market transactions, 13 percent of floating-rate bonds and 40 percent derivatives deals was set with reference to SHIBOR, Li said.