Banks set to cap rates on In­ter­net funds

China Daily (Canada) - - BUSINESS - By WEI TIAN in Shang­hai weitian@chi­nadaily.com.cn

China’s bur­geon­ing on­line fi­nan­cial sec­tor is hit­ting some ob­sta­cles, with banks be­ing ad­vised by an in­dus­try body to hold In­ter­net-based funds to the terms of de­posits. In a re­cent in­ter­nal meet­ing, the China Bank­ing As­so­ci­a­tion spec­i­fied the in­ter­est rates on the funds’ bank de­posits, and it told mem­ber banks to “strictly ob­serve” the spec­i­fi­ca­tions, the Eco­nomic Daily re­ported.

Banks are be­ing urged to cap de­posit rates at 1.1 times the cen­tral bank’s bench­mark rate and charge penal­ties on pre­ma­ture with­drawals of fixed de­posits, the re­port said.

Both steps are said to tar­get In­ter­net money mar­ket funds that of­fer wealth man­age­ment prod­ucts.

The funds put most of their huge as­sets into ne­go­ti­ated de­posits with banks, where they can earn high in­ter­est rates and usu­ally re­ceive full in­ter­est in­come even if they with­draw the money early.

Ex­perts at the CBA meet­ing sug­gested these de­posits should be treated as gen­eral de­posits rather than in­ter­bank de­posits, mean­ing the In­ter­net funds would lose their ad­van­tages, such as penalty-free early with­drawals.

Fur­ther, de­posits would be sub­ject to a 20 per­cent re­quired cap­i­tal re­serve, ac­cord­ing to the re­port.

Eco­nomic Daily is one of the ma­jor chan­nels through which the cen­tral govern­ment sends pol­icy sig­nals.

CBA, the self-dis­ci­plinary or­ga­ni­za­tion of China’s fi­nan­cial sec­tor, has 362 mem­bers com­pris­ing pol­icy banks, commercial banks and other fi­nan­cial in­sti­tu­tions.

An­a­lysts es­ti­mate the yield of Yu’ebao, China’s largest on­line WMP, will de­cline by at least 2 per­cent­age points if the banks adopt the CBA’s tougher prac­tices. That fund might have to shift its fo­cus to the riskier bond or for­eign ex­change mar­kets in search of higher re­turns.

Tian Hong As­set Man­age­ment Co, which runs the 400 bil­lion yuan ($65 bil­lion) Yu’ebao, has put more than 90 per­cent of its fund as­sets into ne­go­ti­ated de­posits with banks.

Less than 7 per­cent has gone into fixed-in­come se­cu­ri­ties, which are usu­ally the in­vest­ments of choice for money mar­ket funds glob­ally.

He Yingyan, a colum­nist with Sina Fi­nance, wrote that the “priv­i­leges” en­joyed by money mar­ket funds were in­tended to pro­tect them from pos­si­ble de­faults dur­ing a mu­nic­i­pal in­vest­ment bond cri­sis in 2011, and they can now be can­celed.

He spec­u­lated that the au­thor­i­ties may re­in­state the 30 per­cent cap for ne­go­ti­ated de­posits in money mar­ket funds’ in­vest­ment portfolios.

An­other rea­son for the as­so­ci­a­tion’s sug­ges­tion was Pre­mier Li Ke­qiang’s call for con­trol of rapidly ex­pand­ing off-bal­ance sheet trans­ac­tions, es­pe­cially in­ter­bank trans­ac­tions.

On Thurs­day, the an­nual re­turn rate of Yu’ebao dipped to 6.09 per­cent from 6.44 per­cent a month ear­lier.

Xu Gao, chief econ­o­mist with Ever­bright Se­cu­ri­ties Co, said the de­cline was mainly the re­sult of ex­tremely loose money mar­ket con­di­tions. The rate may re­cover in late March as banks do their first-quar­ter re­views, Xu said.

An on­line sur­vey by Sina. com showed on Wed­nes­day that 70 per­cent said they would con­tinue in­vest­ing in on­line money mar­ket fund prod­ucts.

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