More than 400.000 people could not withdraw their deposits in 6 rural banks in Henan and Anhui provinces of China, with savings reaching up to 180 million dollars. Two months have now passed, and the investigation is going nowhere.
Furthermore, several bank depositors’ health codes have suddenly turned red in recent days, bringing the issue to the forefront.
Chinese residents must use an app that shows green, yellow, or red codes indicating their health state, including possible COVID-19 exposure.
A green code is required to use public transportation and to enter offices, restaurants, and retail malls.
However, other depositors in central Henan province claim that their codes were intentionally changed from green to red to prevent them from withdrawing their funds. Coincidentally, they were traveling to the capital city to claim their rights or about to do so.
According to Digital Finance Think Tank, previously, official reports said the case involved 2,900 depositors, with a total amount of 180 million dollars. However, NBD reported the actual number reaches 400,000 depositors affected, with nearly 6 billion dollars in savings frozen.
As Digital Finance Think Tank points out, many clients have never been to the bank’s branch. They might not even know the bank’s specific address because they deposit money online. Especially in rural areas in China, people operate online; it is a common practice.
Depositors found out they could not withdraw their money as of April 18, when the online and mobile banking services were suspended on the grounds of a “system upgrade.” Since then, the banks have basically frozen their accounts and the transaction services.
So, the 4.4 billion dollars were deposited online; many are depositors from other places, such as Beijing, Zhejiang, Guangdong, Sichuan, and other parts of the country.
Normally, an investment has an inherent risk, and depositing money in the bank is the safer option. Banks have big trust, so depositors can confidently put their savings in a bank. On the other hand, they choose the rural bank over other banks because of its high deposit interest rate.
For example, a businessman from Wenzhou city, Zhejiang Province, has deposited nearly 2 million dollars in three rural banks, totaling about 6 million dollars, with an interest rate of more than 9% a year. This way, the annual interest return will be 3.6 million yuan. This income is much more stable than the stock exchange or other investment products.
Digital Finance Think Tank noted that as the interest rate of major banks in China does not exceed 4%, then the interest rate of 9% from the rural banks is indeed very attractive.
Rural banks are a type of banking and financial institution set up in rural areas to serve these rural communities, farmers, and agriculture.
But the competition is hard, as rural areas also have many other banks and credit unions. Because rural banks rely mainly on farmers’ savings in towns and villages, there is not much money at all. To survive, many rural banks have to attract foreign depositors through high-interest rates in the form of remote deposits. After this scandal, China’s central bank stopped deposits in other places, but many small banks still operate in the shadows.
Digital Finance Think Tank reported that in the case of the 6 rural banks involved, one major shareholder of the top five banks is Xuchang Rural Commercial Bank.
As a major shareholder, Xuchang Rural Commercial Bank stated that the five rural banks are independent legal entities and operate independently, not under its control and management. But some industry experts said Xuchang Rural Commercial Bank has an inevitable responsibility to supervise.
Digital Finance added that the Xuchang Rural Commercial Bank faces serious internal concerns, with many secret shareholders behind and undisclosed operations. Therefore, the ins and outs of the case and the flow of money are awaiting results from the investigation.
China Banking and Insurance Regulatory Commission and the People’s Bank of China reported that Henan New Fortune Group—a major shareholder of the rural banks—might have illegally absorbed deposits from the public through internal and external collusion, the use of third-party platforms, and fund brokers.
Therefore, these deposits have to be identified. If they are legal, they could be recovered. If the funds are illegal, it would be hard to say. In this case, it is harder to identify this thoroughly, because the funds involved are very large.
According to the “Regulations on Deposit Insurance,” if a bank goes bankrupt, deposits within 74 thousand dollars will be compensated 100%. Many people have seen this, so they do not deposit more than 500,000 yuan in the bank. But so far, the six rural banks have not declared bankruptcy, so it is not clear whether the depositors can request compensation in the end.
There are three situations in which the bank will not pay back a cent. First, the deposits have been lost. Second, deposits are turned into wealth management products. Finally, there is a loss of money after investing in wealth management products.