(Yicai) June 10 -- Ping An Bank has recently been offering trendy Labubu blind boxes and other gifts to entice depositors, with such practices by Chinese lenders raising compliance concerns and sparking debate about the sustainability and regulatory propriety of such marketing tactics.

Clients depositing more than CNY50,000 (USD6,960) for at least three months can receive a Labubu 3.0 blind box or a gift package, according to Ping An Bank’s customer service staff.

Labubu is a brand of collectible plush toy monster elves that has become a global sensation this year, with fans rushing to Pop Mart stores worldwide to buy them. They are out of stock on Chinese e-commerce sites and Pop Mart’s official online channels and are almost impossible to find in brick-and-mortar stores. The situation is the same abroad.

Offering physical gifts to pull in depositors is nothing new. Banks have long used items ranging from daily necessities to electronics to tempt depositors, but in recent years Chinese regulators have explicitly prohibited lenders from attracting clients by offering high interest rates and other unfair competition practices.

Under current regulations, banks must not employ improper marketing tactics such as giving gifts when attracting depositors, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance. They should focus on improving product quality and service experience to attract and retain clients, rather than relying on gifts, interest subsidies, and other tactics, Dong added.

China Merchants Bank has also recently been offering physical gifts, such as small household appliances and supermarket membership cards, to new customers. Other lenders, such as Shanghai Pudong Development Bank, Bank of Nanjing, and China Zheshang Bank, have all launched similar activities, such as deposit gifts or points.

According to banking industry insiders, giving clients physical gifts can meet their material needs and, by leveraging popular intellectual property franchises, attract specific customer groups such as young people. Moreover, such campaigns easily spark attention and discussion on social media, further amplifying the promotion’s reach and impact, they said.

Banks have frequently launched deposit campaigns recently, mainly to retain customers, said Su Xiaorui, senior researcher at Suxizhiyan Research. Driven by a sense of crisis as deposit rates go on falling and large sums flow into other financial products offering higher yields, banks need to offer promotions to attract and retain clients in order to stabilize their funding sources, Su added.

Last month, state-owned lenders including Industrial and Commercial Bank of China and Agricultural Bank of China slashed their deposit rates below the psychologically significant 1 percent level, prompting a wave of portfolio rebalancing among retail investors.

Deposit rates are strictly supervised, so physical gifts effectively play the role of a “third-party interest rates,” becoming a flexible means for banks to cleverly side-step the controls and beef up their competitiveness, an industry insider told Yicai.

But the source also said this practice will have increased the non-interest expenses of banks and their cost of debt, leading to vicious competition. In the long run, this is not conducive to banks easing the pressure of narrowing net interest margins, the person said.

Editor: Futura Costaglione