2015-10-26

Cry Havoc, And Let Slip The Dogs of Deposit War

The first thing that came to mind when I read the PBoC abolished the deposit ceiling was rate war. I wasn't the only one.

Reuters: China's rate liberalization won't trigger deposit war
China's landmark decision to scrap a long-standing ceiling on bank deposit rates is unlikely to have much impact on the real economy - or help credit-starved smaller firms - as lenders focus on protecting margins rather than competing for new funds.
This article tells you all you need to know about why banks will fight if they have to: Chinese Cash Crunch Could Return in September; Why Not Spend ¥8 million to Avoid a ¥10 million Fine?. The regulatory snapshot rules have changed, but there will still be a need to attract deposits. Also:
Even with the deposit rates ceiling removed, banks will still not price deposits at a level high enough to compete against wealth management products, which currently offer returns from 3 to 20 percent, bankers said.
At this point in the cycle, the most likely situation is some banks hold rates steady versus competitors who cut deposit rates. If I was a totally profit maximizing bank, I'd be readying a marketing push for my U.S. dollar deposit products, which might see a bump in interest rates by early next year.

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