Chinese banks are offering fewer wealth-management products amid a decline in yields in May following implementation of a policy that aims to tighten regulation of the sector, Xinhua News reports.
The new regulation required that investment in nonstandard assets be no higher than 35 percent of a bank’s total outstanding wealth management products, or no more than 4 percent of the bank’s total assets at the end of the previous year. By contrast, at the end of 2012, 40 percent of all outstanding wealth management products, or 2.8 trillion yuan ($456.27 billion), were invested in nonstandard assets, a China International Capital Corporation (CICC) report showed, Xinhua News reported. Nonstandard assets are those not traded on the market or any stock exchanges, including trust loans, acceptance bills, letters of credit, accounts receivable and other credit products, according to the China Banking Regulatory Commission.
As a result, 2,439 wealth management products were issued in April, a 12.8 percent fall compared to the figure in March, according to Bankrate.com.cn. In the first week of May, 35 banks issued 282 products, compared to the 400 sold in the previous week.
“China has limited the investment of wealth management products in nonstandard assets, which inevitably led to a decline in new products,” said Guo Tianyong, a professor at the Central University of Finance and Economics in China.
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More Chinese investors had considered wealth management products to seek higher returns, according to Xinhua News, which have a 1 percent margin compared to bank deposits. However, problems came with higher yield – a Huaxia Bank product failed to pay its return last year, and another by CITIC Trust is delaying payment. The regulation is also meant to combat Chinese banks’ moves in recent years to sell off-balance-sheet products, in order to evade regulatory oversight.
Despite the regulation, experts are optimistic about the future of China’s wealth management business.
“The shrinking business brought by new rules will only be temporary,” said Zeng Gang, a banking expert with the Chinese Academy of Social Sciences. “The new controls will push banks to be more innovative in the wealth management business, helping the sector to develop in a much healthier way.”
Zeng said there is great room for wealth management products to develop in China as it has just reached 11 percent of the country’s total outstanding loans, which was 63 trillion yuan ($10.27 trillion) last year, according to Xinhua News.