China Citic Bank has further decreased its issuance of structure deposits in the first half of the year as the total outstanding balance at Chinese banks reached a historical low in June.

The corporate balance of structured deposits fell 63.1% to CNY132.1 billion (US$20.5 billion) at the Chinese bank year-on-year (YoY), or down 25% from six months ago, at the end of June. The figure accounted for 3.7% of its corporate deposits, which was a 1.38% decrease YoY and ‘a relatively low level among joint-stock banks,’ the bank stated in its H1 21 financial report. 

Corporates are the main contributor of structured deposits for joint stock banks in China, which are classified as ‘medium and small-sized banks’ by the People’s Bank of China (PBoC).

In contrast, retail customers represent at least half of the market share at large banks led by Big Four – Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Agricultural Bank of China (ABC) and Bank of China (BOC), according to the central bank.

Since the Chinese regulators began to curb down the structured deposit issuance in the fall of 2019, the market has significantly shrunk with the outstanding balance hitting a historical low at CNY6.04 trillion as of 30 June, 57.3% of which was attributed to medium and small-sized banks. Specifically, corporate and retail customers accounted for 65.8% and 34.2% of the balance at these banks.

Nationwide, the total balance was 4.9% lower from a month ago, or a 44.2% decline YoY. However, it slightly picked up to CNY6.15 trillion driven by corporate deposits in July before bouncing back to the bottom in August. 

Citic Bank’s corporate balance of structured deposits made up 5.8% of the total recorded at medium and small sized banks. In addition, the bank posted structured product liabilities at fair value through profit or loss at CNY323m at the end of June - a plunge from CNY4.36 billion six month ago.

The reform of the structured deposit market in China is still ongoing - the new framework came into force on 18 October 2020. In July, the China Banking and Insurance Regulatory Commission (CBIRC) fined Shanghai Pudong Development Bank CNY69.2m over 31 breaches, which included issuing structured deposits that actually had no derivative element and fomenting institutions that had no derivative trading license in launching structured deposits.

Additionally, China Minsheng Bank and Bank of Communications were fined CNY114.5m and CNY41m, respectively, over dozens of breaches, including the issuance of structured deposits with forged counterparty or derivative transaction.   

SRP registers 38 structured deposits issued by China Citic Bank from January to mid-March, which are linked to a total of 12 foreign exchange (FX) pairs.

Non-deposits

In the meantime, China Citic Bank (International), the offshore arm of the bank, delivered a steadily increasing net fee and commission income from ‘investment and structured investment products’. The amount climbed 32.2% to HK$183.6m from six months ago, or up 55.8% YoY.

Citic Wealth Management, the subsidiary established under the requirement of the 2018 new asset management regulations, recorded a balance of non-risk bearing wealth management products of CNY239.6 billion, leading to a total of CNY1.21 trillion bank-wide.

The balance of net-asset-value (NAV) products in conformity with the new regulations reached CNY954 billion, accounting for 79.1% of the total.

‘Due to the big increase in new products and estimated profits of equity assets, wealth management business of the Bank and Citic Wealth Management realized income of CNY4.592 billion,’ stated the issuer.

The wealth management arm has not marketed any structured product since opening for business in June 2019 because it’s still in the process of obtaining the derivatives trading license from the CBIRC.

However, the issuer is building up its offering to capitalise on the untapped market for wealth management firms owned by Chinese banks with the launch of the CSI Citic-Wealth Coastal Core Economic Belt ESG Select 100 Index, which is co-developed by China Securities Index (CSI).

In H1 21, China Citic Bank posted net profit of CNY29 billion, up 13.7% YoY, as operating income grew 3.4% to CNY105.7 billion.

Click here to view the H1 21 financial report.