This Is No Time to Play Games With China Savers
Deposits at riskier small lenders are a profit-booster for large institutions, an uncertain refuge for households.
Getting through the crisis of a lifetime.
Photographer: Feature China/Barcroft Media/Getty
China’s banks have a deposit problem. The timing couldn’t be worse.
The virus shutdown pushed households to put their money in a safe place in the first quarter, with system-wide deposits rising by a record 6.47 trillion yuan ($912 billion). Some large banks did the same, parking their own cash at smaller peers that offer higher returns. At China Construction Bank Corp., for instance, such deposits with other institutions shot up 70.3%. At Agricultural Bank of China Ltd., they rose 61.25%.
Liquidity flowing between banks should be comforting for the broader economy, where financing pressures are squeezing companies, households and lenders. In theory, this could enable credit growth. Smaller institutions get reliable funding, and they typically end up supporting weaker, regional small-and-medium enterprises that account for 60% of gross domestic product.
But they’re also facing a profitability squeeze with a crackdown on wealth management products and lower lending rates, along with rising bad loans. Depositing the cash may help tide them through but won’t fill in the cracks in China’s financial system, relied upon by hundreds of millions of households.