China Tells Small Banks to Cap Wealth Management Product Sales
(Bloomberg) -- Chinese regulators have instructed some local banks to limit sales of wealth management products after growing concerned about the risks associated with a sudden ramping up of the business.
Local offices of the China Banking and Insurance Regulatory Commission released so-called window guidance to some smaller banks to cap issuance at current levels, said people familiar with the matter, who asked not to be named discussing a private request. Caixin earlier reported on some details of the verbal orders. The CBIRC didn’t immediately respond to a request for a comment.
The banks have been expanding to show they have the capacity to issue at least 100 billion yuan ($16 billion) of investment products, a threshold that would allow them to establish a separate wealth management arm, the people said. They have till year-end, when a new set of regulations aimed at reining in risks in China’s sprawling asset management industry kicks in. At that point, banks without wealth arms will have to bow out of the business.
“Small banks won’t be allowed to issue new WMPs after the deadline,” said Zhang Shuaishuai, an analyst at China International Capital Corp. “Risk controls and the investment capacity of smaller banks are relatively weak, and the latest guidance from regulators is mainly to prevent increasing the risk of future defaults.”
Over the past decade, the wealth management products have become a key source of funding that’s helped underpin China’s standout economic growth. Investors piled into bank-issued wealth management products -- with about 30 trillion yuan outstanding -- since they promised stable returns.
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Some smaller banks have been ramping up issuance to meet the 100 billion yuan requirement, which has unnerved regulators, one of the people said.
The verbal decree also comes as some of the nation’s heavily indebted real estate firms, including Kaisa Group Holdings Ltd. and China Evergrande Group, have missed payments on similar products that they used to raise money for housing developments.
In total, 29 banks have received licenses to establish wealth management units, while 19 have applications pending, according to the CBIRC. Another seven lenders with wealth management capacity of more than 50 billion yuan haven’t announced whether they will apply to form a unit, according to data compiled by CICC.
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