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Regulatory adjustments in China have tightened restrictions on online lending activities for small- and medium-sized private banks, leading many to withdraw their higher-yield medium and long-term deposit offerings. Last month, Beijing Zhongguancun Bank discontinued its three-year lump-sum deposits, while Bank of Sanxiang eliminated its five-year fixed deposits and reduced rates on three-year deposits. Additionally, online banking platforms such as Mybank and Yillion Bank have removed or marked as sold out their five-year deposit products on mobile apps.
Historically, private banks expanded their credit portfolios by partnering with internet platforms and loan service providers, shouldering the capital and credit risk themselves while their partners handled customer acquisition, data collection, and operational processes in exchange for service fees. However, in October, the national financial regulator prohibited banks from outsourcing core credit approval and risk management services to external vendors to mitigate partnership risks. This regulation hit smaller banks with weaker risk controls hardest, forcing them to scale back related lending activities and shrinking their credit assets significantly.
For example, Yillion Bank saw its annual online consumer loans drop nearly 46% last year to CNY22.9 billion (roughly USD 3.4 billion), with its online consumer loan balance declining 49% to CNY8.9 billion (about USD 1.3 billion). With limited access to high-quality credit assets, many smaller banks are deliberately eliminating high-coupon, long-term deposits to reduce costly long-term liabilities, according to a senior analyst from a digital technology research institute.
Rigid oversight has also led to a notable decrease in annual loan disbursements among small and mid-sized private banks, reducing their need to issue expensive medium-to-long-term deposits. This pattern may extend to more small banks, though major state-owned and large joint-stock commercial banks are expected to adopt measures such as deposit caps to control their deposit volume, the analyst added.
A banking professional noted, “Our bank has a significant amount of three-year fixed deposits maturing this year. We’re focusing on offering one- and two-year deposit products, large-denomination certificates of deposit, and wealth management products, expecting depositors to prefer using maturing funds for these shorter-term options.”
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