(Yicai Global) Jan. 18 -- Commercial banks may not offer fixed deposits or time-demand optional deposits through any websites that they do not operate themselves, China’s central bank said on Jan. 15, bringing a halt to a rapidly developing form of internet finance on which many small and medium-sized banks relied.

Banks should only offer deposits through their own business branches or websites, according to the People's Bank of China and the China Banking and Insurance Regulatory Commission.

Those deposits that have already been made on third-party sites should be settled upon maturity, they said.

Local banks that have been leveraging the financial services provided by fintech giants Ant, Tencent Holdings and the like, should set up their own e-deposit business to serve customers in their region, said Dong Ximiao, chief researcher at Shenzhen-based Merchants Union Consumer Finance.

In the past two years, a number of small and medium-sized local banks have become national ones by using third-party financial platforms such as Ant’s Alipay to gather funds from across the country. By offering high interest rates for short-term deposits from as little as CNY50 (USD7.64), they are able to quickly accumulate capital to relieve liquidity pressure.

Such funds have accounted for as much as 70 percent of total deposits in some banks, Sun Tianqi, head of the central bank’s financial stability bureau, said late last year.

This disorderly expansion of internet bank deposits has raised alarm bells among regulators who seek to curb potential risk, the Beijing Business Today reported citing, Wang Jianhui, a senior banking analyst.

The stability of non-self-operated online platform deposit products is poor, which challenges the liquidity management of commercial banks, the regulators said. The business has affected the self-regulatory mechanisms of the market pricing of interest rates. Regulations also stipulate that local banks such as rural commercial banks should focus on serving their home turf.

More than 50 banks offer deposit services on 11 internet platforms, Sun said. Most of these accounts hold less than CNY500,000 (USD76,438) each.

Last month, Ant, Tencent and several other internet-based firms suspended online bank deposits to conform with regulations.

Editor: Kim Taylor