Amid the European crisis in 2012, European banks reached deep deep down to encourage depositors to lodge their savings in these highly levered financial institutions. Most notably, now defunct Bankia, which offered no lesser gift than a Spiderman Towel in exchange for a EUR300 deposit. So, one wonders just how desperate they are - and just how close to total collapse - when Chinese banks are offering Mercedes Benz, iPhones, or a gold pendant to encourage cash as Bloomberg reports one analyst warns, "Chinese banks are hemorrhaging their deposits."
Banks in the U.S. once gave away toasters and irons to lure depositors. Banks in China are upping the ante. With customers pulling out money and putting it into higher-yielding investments, they are offering Mercedes, iPhones, and daily deliveries of vegetables to sidestep interest rate caps and get people to stash some yuan in savings accounts.
“Chinese banks are hemorrhaging their deposits,” says Rainy Yuan, an analyst at brokerage Masterlink Securities in Shanghai. China’s banks lost 950 billion yuan ($154 billion) of deposits in the three months through September, the first quarterly drop since 1999.
In the first 11 months of the year, new deposits were 23 percent lower than in the same period last year, People’s Bank of China data show. Offering incentives to attract money is not the solution, Yuan says: “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.”
However, The China Banking Regulatory Commission in September banned what it called “illicit” deposit-gathering practices, including gifts and rebates on deposits, without clarifying whether product giveaways in lieu of interest payments qualify as gifts.
Banks that flout the curbs could face punishment, the regulator said. The warning hasn’t deterred banks.
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.
In northern Shanxi province, Industrial Bank offered a gold pendant for a one-year deposit of 10,000 yuan.
Also in Shanxi, Citic Bank promised a daily supply of eggs and vegetables for three weeks to elderly customers who deposited 10,000 yuan, Shanxi Daily reported in November.
In Ningbo, Ping An Bank is giving cash instead of gifts. Savers can get 258,000 yuan of interest payments immediately when depositing 1 million yuan, or receive an interest-and-principal payment of 1.3 million yuan in five years. A spokesman for Ping An Bank declined to comment.
Liao Qiang, a director at Standard & Poor’s in Beijing warns, "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."
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We are sure this will all end well. Buy Chinese stocks (like everyone else)!