Chinese banks’ balance sheets are adjusting under regulatory changes, with WMP issuance under pressure and structured deposits rising quickly. Notably, many of these structured deposits are “synthetic” and are promising returns based on asset price movements without apparently investing in the underlying asset markets. In addition to the inherent risks to banks, the results are likely to be higher corporate credit spreads as demand for corporate bonds weakens, higher corporate lending rates, and narrower bank net interest margins.
