Across The Border | China’s tightened rules on wealth management products having little effect
Suggestions a trial has now begun to bring unsecured Chinese WMPs, one of the main sources of shadow banking, onto banks’ balance sheets
China has made several moves this year to reduce the risks posed by opaque wealth management products (WMPs) – one of the main sources of income for the shadow banking industry.
However, as many companies, including those in distress, still view WMPs as a preferred form of financing, analysts say the measures as unlikely to have any great effect on their continued growth.
“The proposed regulations, in their current form, are positive but represent changes at the margins, and are unlikely to lead to a reduction in the scale of WMP issuance, as banks can find ways around the asset allocation restrictions,” according to a report from the Fitch Ratings.
“If implemented, they [the CBRC revised rules] only impose restrictions on the investment of proceeds from retail investors, which accounts for less than half of the total amount of the WMPs
Earlier this year, the China Banking Regulatory Commission (CBRC) circulated revised rules which, amongst other things, prohibit proceeds from WMPs being sold to retail clients to be invested in shares or beneficiary rights.
It also requires banks to set aside reserves from net income until they have built up a capital buffer equivalent to 1 per cent of the value of their outstanding WMPs.
“If implemented, they only impose restrictions on the investment of proceeds from retail investors, which accounts for less than half of the total amount of the WMPs,” said Jack Yuan, analyst at Fitch Ratings in Shanghai.
“Banks can shift restricted assets to products held by institutional investors. The total amount of investment in shares or beneficiary rights is also quite moderate,” said Yuan.
Last month, the People’s Bank of China (PBOC) reportedly began a trial, to incorporate off-balance-sheet WMPs in its Macro Prudential Assessment (MPA) framework.
