China’s CZ Bank ditches structured deposits as CMB takes top spot

CZ Bank has posted stable customer deposits of CNY1.36 trillion (US$206.5 billion) as at 30 September quarter-on-quarter, or a 10.3% rise from six months ago, after it shut down its structured deposits business for both retail and corporate clients.

Opened in 2004, the bank is the second youngest joint equity commercial bank headquartered in Hangzhou. It had assets of CNY2.05 trillion and liabilities of CNY1.92 trillion as of the end of September with a net profit of CNY10.1 billion generated from January to September, down 9.7% year-on-year.

The bank shut its structured deposits retail business last September - two months before it went public on the Hong Kong Stock Exchange, a source familiar with the matter told SRP.

The decision came less than one month before China Banking and Insurance Regulatory Commission released the landmark guidelines on 18 October 2019, which aim to curb the surging issuance of structured deposits and regulate sales practices like ‘fake structures’ at Chinese commercial banks.

The bank stopped distributing structured deposits to corporate clients in April – after receiving criticism of arbitrage from the regulators in the low interest rate environment, said the source, adding that there are still a number of live products sold before April with an investment period of no longer than one year.

The balance of structured deposits from both client groups accounted for around five percent of the bank’s total deposits in 2019. Despite the overhaul, the bank is likely to offer customised structured deposits to high-net-worth-individuals (HNWIs) in one or two years, according to the source. 

There were 384 structured retail deposits distributed from May to September 2019, most of which were tied to 3M Shibor - they had a tenor of three months, six months and one year. The most recent product, an accrual range structure tied to the interest rate, struck on 30 September 2019 and offered a return between 1.43% to 3.65% pa.

China Merchants Bank (CMB)

The first joint-equity commercial bank in China has taken over Ping An Bank as the largest player in the market with 1,106 products issued during the January to September period, which translates to a sales volume of CNY136.1 billion or a market share of 32%, SRP data shows.

Next in line are Agricultural Bank of China and Guangfa Bank, which had an issuance of 954 and 438 during the first nine months of 2020, respectively.

CMB has 262 live products - half of which are structured asset management products and half structured deposits - with XAU/USD, CSI Smallcap 500 and CSI 300 as the most popular underlyings. The majority of the products was deployed with range or knockout payoffs while shark fin, capped call and bull bear were also featured in five products each.  

Net profit at the Shenzhen-headquartered bank dropped 0.89% to CNY77.1 billion during the nine months. Customer deposits amounted to CNY5.5 trillion as of 30 September, up 13.43% compared with the end of 2019.

On-balance sheet, derivative assets surged by 51.3% to CNY36.6 billion while derivative liabilities increased by 64.2% to CNY38.1 billion due to ‘the significant fluctuation in valuation of currency derivatives as a result of the impact of continuing appreciation of the RMB and the widening of the spread between domestic and overseas funds’.

Click to view the Q3 20 report of CZ Bank and China Merchants Bank.

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