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Small banks accelerate reduction of cross-region deposits, aiming to clear by end-2027
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Chinese financial regulators are intensifying oversight of localized operations for private and regional banks, forcing small lenders to reduce outstanding cross-region deposits. According to a report by Caixin citing a private bank insider, some banks are now quarterly reducing provincial deposits and increasing in-province deposits, with a target to fully eliminate cross-region deposits by the end of 2027. In July, regulators issued guidance to some regional and private banks, defining local customers as those meeting at least three of five criteria: ID address, residence, main business location, mobile number area code, and device location. Banks were instructed not to add new cross-region business and to settle all existing cross-region business by 2027 without extending maturities via rollovers or restructuring. The guidance applies to both loans and deposits. This follows a 2021 ban on cross-region deposit-taking by regional banks, which had previously accumulated large cross-region deposits via internet platforms. The new directive deepens financial oversight by requiring the cleanup of remaining legacy business.
Source report
September 24 (Caijing) — Some local small banks are actively reducing their existing cross-region deposit balances.
"We are basically reducing inter-provincial deposits on a quarterly basis while increasing deposits within the province," said an insider at a private bank. The bank plans to gradually phase out cross-region deposits, with full completion targeted by the end of 2027.
Since the beginning of this year, financial regulators have imposed stricter requirements on the localized operations of private banks and local commercial banks. This has forced small banks that previously relied heavily on internet platforms to attract deposits to replace their existing cross-region deposits with compliant localized deposits.
In July, some local commercial banks and private banks received regulatory guidance clarifying the criteria for identifying local customers. Under the new rules, at least three of the following five elements must be met:
- ID card address
- Place of habitual residence
- Primary business location
- Mobile number归属地 (area code)
- Device location data
At the same time, regulators required that banks must not add new cross-region business. All existing cross-region business must be fully settled by the end of 2027, and no extension of maturity dates through rollovers or restructuring is permitted.
"This requirement applies not only to loan business but also to deposit business," said a bank insider. The regulator has not adopted a "one-size-fits-all" approach but instead requires the natural digestion of existing cross-region deposits, providing a sufficient transition period.
Years ago, some small banks accumulated large amounts of cross-region deposit funds and customers through internet financial platforms. Although financial regulators banned local commercial banks from soliciting deposits across regions in 2021, some banks still retain existing business. The regulatory guidance issued in July, which calls for further cleanup of existing business, represents a deepening of financial supervision. (Shell Finance)
Source
财联社Eastern
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China tightens local-only rules; small banks must phase out cross-region deposits by 2027