To give banking customers incentives to boost their deposits, Chinese banks are trying a unique set of giveaways that include items like iPhones, daily grocery deliveries and even Mercedes, Bloomberg reported.
“Chinese banks are hemorrhaging their deposits,” Rainy Yuan, an analyst at brokerage Masterlink Securities in Shanghai, told Bloomberg, which reported that China's banks lost $154 billion (950 billion yuan) of deposits in a three-month period leading into the end of the September quarter. New deposits dropped 23 percent, year over year and hit the first quarterly drop since 1999.
“There is no fix for this. All the efforts they made to win savers back will only push up the costs, so it’s a losing battle to fight," Yuan added.
Bloomberg reported that instead of putting their money into the banks, customers are looking for higher returns and looking toward money-market funds available through e-commerce leader Alibaba Group and Baidu. Customers with saving accounts are also looking to put their money elsewhere, like high-yield products, which Bloomberg called "the fastest-growing part of the so-called shadow banking system." Also, consumers are shifting their money from banks to stocks.
"In the first week of December, Chinese investors opened almost 600,000 stock trading accounts, a 62 percent increase over the previous week, according to China Securities Depository & Clearing," Bloomberg said.
In response, China is adjusting interest rates and coming up with luxury goods giveaways to attract banking customers. Even with the China Banking Regulatory Commission cracking down on what it calls "illicit deposit-gathering practices," banks have continued to offer them.
"The warning hasn’t deterred banks," Bloomberg said, which includes items like "the iPhone promotion, at a Beijing branch of Ping An Bank in October, offered a 128-gigabyte iPhone 6 Plus in lieu of interest payments for depositing 38,000 yuan for five years. For parking 903,000 yuan for the same period, savers could pick one of four Mercedes-Benz models. A Mercedes A180, which costs 252,000 yuan, would give investors the equivalent of an annualized return of almost 7 percent, compared with the benchmark rate of 4 percent on five-year deposits."
But the struggle to attract banking deposits won't be going away anytime soon.
"The battle for deposits will only get worse as China moves ahead with interest rate liberalization, which will drive up banks’ funding costs and hurt profit," Central Bank Governor Zhou Xiaochuan told Bloomberg.