Publications
Partners
Shanghai - China’s banking regulator is considering tightening rules for the nation’s more than $3trn market for wealth-management products, including caps on investments in equities, the 21st Century Business Herald reported, citing unidentified people. Chinese stocks slumped.
All lenders could face caps on the investment of wealth-management product proceeds in shares, the Herald said. Smaller banks with weaker capital could be banned altogether from putting the money into equities and “non-standard assets,” it said, without providing further details. Non-standard assets are often loans.
The China Banking Regulatory Commission didn’t immediately reply to a fax seeking comment.
The new rules, as detailed by the Business Herald, would come on top of restrictions the CBRC placed on the so-called WMPs in late 2014, when it imposed limits on investments in non-standard credit assets.
Growth in WMPs has fueled growth China’s shadow-banking industry, which Moody’s Investors Service estimates is worth more than 50 trillion yuan ($7.5 trillion), allowing financial institutions to extend funds to risky borrowers and evade capital requirements.
The CBRC may also ban banks from working with securities firms or funds through so-called “asset management plans” that invest in non-standard assets, leaving them to only work with trust firms, the Business Herald said.
The regulator met with some banks this month on the rule revision and a final version hasn’t been drafted, according to the report.
Financial Threat
Charlene Chu, a partner at Autonomous Research, said in May that lenders’ WMPs were the biggest immediate threat to China’s financial system, with similarities to Western bank exposures in 2008 that helped to trigger the financial crisis. The banking analyst made her name warning of the risks from China’s credit binge.
The continued growth of Chinese banks’ investment receivables - which encompass WMPs, asset-management schemes and bonds - is exposing mid-sized and smaller regional lenders to liquidity and credit risks, Moody’s said in a statement earlier on Wednesday.
Those receivables at 26 publicly traded banks have more than quadrupled since 2012 and accounted for more than 8% of their total assets by the end of 2015, Moody’s said.
The outstanding value of China’s WMPs rose to 23.5 trillion yuan, or 35% of the country’s gross domestic product, at the end of 2015, from 7.1 trillion yuan three years earlier, according to China Central Depository & Clearing. About 7.8% of the outstanding products were invested in equities and 15.7% in non-standard credit assets, the data show.
The Shanghai Composite Index fell 2.4% as of 08:51, while the ChiNext Index slumped 4.6%.
