Some of China’s Banks Offering Bonus Rates for Deposits

This is one of those stories that almost defies belief. It follows the Chinese government’s recent requirement to increase its banks’ capital reserves. The reserve requirement for the country’s four largest banks will now be 18.5%. Smaller banks will be required to hold 16% of deposits in reserves.  In an effort to attract deposits to help meet the new requirements, some of the China’s banks are apparently offering an interest payment of up to 30% for deposits made by or on December 31st. Here’s what Caixin reports:

“If an individual puts 100 million yuan in the bank on the last day of this year, he or she will receive 200,000 to 300,000 in interest for the single-day saving, a source told Caixin. At the end of the second quarter, the one-day interest rate was only 0.1 percent.”

If one of the Chinese government’s goals is to stem the flow of foreign capital pouring into the country, incentives like this are not not what officials had in mind.

In September, some banks were forced to halt offering free travel, school fees and other bonuses to depositors. At that time, the government had also raised reserves requirements which the banks honored in principle by tried to avoid in practice.

A free trip to Hong Kong is one thing, but, if the report from Caixin is accurate, 30% interest is quite another. Just sayin’.

Paul Ausick