East West Bank is rolling out a series of new certificate of deposit products in order to boost its deposit ratios. The San Marino-based bank, with a local branch in Encino, hopes to attract depositors who might not otherwise become savings customers with a novel product tied to an index of Chinese companies listed on the Hong Kong Stock Exchange. The hybrid product offers the potential for higher returns than a traditional savings account while still guaranteeing the principal investment. “We feel that with so much interest in China, a lot of our investors would like to have some exposure to China, but not necessarily to take too much risk,” said Dominic Ng, chairman, president and CEO of East West Bank. “We decided that if we could come up with something that gives customers the upside, but guarantees there’s no losses, that would be the best of both worlds.” The Greater China Investment Index CD works this way: The bank issues an offering over a period of about three weeks. At the end of that period the deposits collected are invested in the Hang Seng China Enterprises Index at a value calculated at the time of the investment. The Index includes 37 state-owned companies in China considered a bellwether for the country’s recent growth. The minimum deposit period is five and one-half years with a minimum deposit of $5,000 required. At maturity, investors receive an amount based on the growth of the index. Two options are available to investors. In one, which carries a guaranteed interest payment of 1 percent annually, investors receive a smaller percentage of the growth of the index at the end of the period, about 75 percent. In the second option, with no guaranteed interest payment, investors would receive a higher percentage of the growth generated by the fund, about 85 percent. Covering the principal The growth or losses are calculated based on quarterly averages, but the principal remains intact. “We do some very sophisticated hedging to make sure that we can find a way to cover the principal, so even if five years from now, the index comes down below the current rate, we have done enough hedging to make sure the principal is covered,” said Ng. Bank officials said the idea for the CD came from what they believe to be increasing interest in China and the growth the country has experienced. China’s economy has been growing at about an 8 percent rate annually for the past five years, and the value of the Hang Seng index has doubled over the last two-and a-half years. “We knew the demand was out there, not just our Asian-focused client base, but everybody is seeing the potential in China,” said Steven Canup, senior vice president at East West Bank. “We also knew most people were hesitant to jump in and buy mutual funds or stocks because it carries a perception of risk greater than a regular mutual fund.” The program fits nicely into East West’s niche as a bank that bridges the Pacific Rim. At the same time, officials are hoping that the unusual product will spur badly needed deposits. East West’s deposits have shown considerable growth deposits in the third quarter grew 30 percent over the period last year but its loan business has been extraordinarily strong, so much so that the ratio of loans to deposits is now far higher than the industry standard, analysts said. “Typically, a bank is in the 80 percent range of loans to deposits, so they don’t have to go out and borrow money to lend to customers,” said Todd Stender, a bank analyst with Crowell, Weedon & Co. “That ratio has climbed precipitously for East West. Now it’s over 100 percent, so you’re now seeing the urgency for East West to gather more deposits.” Gaining new customers The Greater China Investment Index CD is a way to attract the more sophisticated customers the bank tends to attract, particularly during a time when most interest-bearing savings accounts provide very low yields. The first offering, which closed several weeks ago, brought in about $15 million in deposits, and about 23 percent of the first depositors were new customers to the bank. A second offering is currently underway. “We were pretty happy with the first offering,” said Canup. “It was a test case. We did find not only our customer base, our Chinese-American customers, but we also received a decent demand from mainstream customers,” the term the bank uses for its customers who are not ethnic Chinese. In addition to the second Greater China Investment Index offering, the bank is readying additional certificate of deposit products, Canup added. “We’re looking at a number of other indexed CD’s,” he said. “You can do that to a number of different bench marks or indexes. We will do this and others on a pretty regular basis.” For competitive reasons, Canup said he could not elaborate on the upcoming products. Stender noted that the bank has stepped up its efforts to attract depositors over the last year, a change from its previous strategy. But the unusual nature of the products is something he and others would likely keep close tabs on. “This is really integrating a bank with an investment product and you really have to be well-versed in investments to know what you’re doing. I’m going to keep an eye on that to make sure they don’t get ahead of themselves,” Stender said.