Exclusive: Chinese regulators ask city commercial banks to cap WMPs

Regulators in several Chinese provinces have ordered commercial banks in cities to cap their wealth management assets at current levels, Caixin learned Thursday from industry insiders.

Authorities issued the order in verbal directives to banks, industry insiders said, without giving a reason.

China’s $ 13 trillion asset management industry nears year-end deadline to comply with the radical new rules. As part of the overhaul, commercial banks are required to create separate units to carry out activities related to Wealth Management Products (WMP). Financial institutions that are unable to do so at the moment are expected to set up dedicated wealth management departments.

At the end of September, 337 commercial banks and their WMP units had wealth management product balances totaling 27.9 trillion yuan ($ 4.37 trillion), up 9.3% from a year ago, according to information provider Chinawealth.com.cn.

The China Banking and Insurance Regulatory Commission (CBIRC) approved 29 wealth management companies, 21 of which started operations in late September. These WMP companies managed 13.690 billion yuan of WMP, nearly tripling from a year ago.

Although WMP companies now manage nearly half of China’s WMPs, only a small number of the country’s more than 4,000 commercial banks have established WMP units.

When regulators in late 2018 ordered the creation of WMP units by commercial banks, 73 banks with over 90% WMP market share were eligible to create WMP units, Caixin learned. Around the time, those close to regulators told Caixin they expected around 50 to be approved by the end of 2020.

Progress has been much slower than expected. Less than 30 have been approved, and several that have been approved for a long time have not started operations, including the WMP units of Shanghai Pudong Development Bank Co. Ltd., China Minsheng Banking Corp. Ltd. and China Guangfa Bank. Analysts said the delay in opening cases could be linked to insufficient rectification and regulatory fines for non-compliance.

A branch of the Pudong Development Bank was fined 461.8 million yuan in January 2018 for internal control breaches and other rule violations. Minsheng Banking was fine over 100 million yuan last year, partly for two board members whose qualifications were never approved by the CBIRC. Guangfa Bank has been fined 90 million yuan for the illegal use of funds in real estate, personal loans and its wealth management activities, sources told Caixin.

Going forward, small and medium-sized banks may face two paths for their WMP business: selling WMPs to other WMP companies or banding together to form WMP joint ventures, several industry participants suggested.

The Zhejiang Rural Credit Cooperative Association, which represents a group of small rural lenders in Eastern Province of China, told Caixin that none of its members had enough resources to apply for a license. ‘WMP unit by itself. A viable option could be for the association to set up a WMP unit to do research and development, and the products could be sold by its member lenders, the association said.

Contact journalist Denise Jia ([email protected]) and editor Bob Simison ([email protected])

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