(Yicai) June 5 -- Several small private banks in China are stopping or scaling back sales of higher-rate, longer-term time deposits because regulatory changes have shrunk their internet consumer lending businesses and made long-duration, high-cost liabilities less attractive.

Beijing Zhongguancun Bank pulled its three-year lump-sum time deposit late last month, while Bank of Sanxiang retired its five-year time deposit and cut the interest rate on its three-year deposit in early May. On the apps of several other lenders, including Mybank and Yillion Bank, five-year time deposits have also disappeared or are marked as “sold out.”

To expand lending, smaller private banks long relied on partnerships with internet platforms or loan service firms. Under this model, the bank supplies the capital and bears the credit risk, while the partner handles everything from customer acquisition to post-loan collections in exchange for service fees.

Because this model carries operational risks for banks, the National Financial Regulatory Administration began enforcing a new rule last October that prohibits lenders from outsourcing key functions such as credit approval and core risk control. Smaller banks with weaker risk control capabilities have been forced to cut back these businesses, sharply reducing their credit assets.

For example, Yillion Bank’s new online consumer lending plunged nearly 46 percent to CNY22.9 billion (USD3.4 billion) last year from 2024, with the outstanding balance down 49 percent to CNY8.9 billion (USD1.3 billion).

When the growth of high-quality credit assets is sluggish, stopping sales of high-rate, longer-term time deposits is a deliberate move by smaller banks to reduce expensive long-term liabilities, Ai Yawen, a senior analyst at the Rong360 Digital Technology Research Institute, told Yicai.

Stricter regulatory oversight has also led to a sharp decline in annual loan issuance at some smaller private banks, further diminishing the need for them to offer longer-term deposits at relatively high interest rates, he added.

More smaller banks could follow suit in pulling high-rate, longer-term time deposits, Ai pointed out. But he expects major state-owned banks and nationwide joint-stock banks to stay put for now and instead control deposit volumes with measures such as quotas.

“Our bank has a large number of three-year fixed deposits due this year,” a source told Yicai. “We’ve focused on launching one- and two-year deposits, personal large-denomination certificates of deposits, and wealth management products in the hope of steering depositors toward these shorter-term options when their funds mature.”

Editors: Tang Shihua, Futura Costaglione