Banking regulator warns about wealth management products

PUBLISHED : Tuesday, 15 January, 2013, 12:00am
UPDATED : Tuesday, 15 January, 2013, 4:15am

The banking regulator has told mainland lenders to "strictly" supervise the design, sale and investment of their wealth management products as it seeks to curb risks from banks' off-balance-sheet businesses.

Banks are banned from selling wealth management products without authorisation and should stop selling private-equity-related products or misleading customers into buying such products, the China Banking Regulatory Commission said on its website yesterday.

Lenders were also required to separate accounting and management of products that offered fixed and floating returns, it said.

Banks have been relying over the past few years on wealth products, which offer higher returns than deposits, to dissuade households from moving their savings elsewhere.

Fitch Ratings warned last month this "more mobile, expensive and short-term" funding base might create repayment risks and present challenges to banks' profitability and asset liability management.

Huaxia Bank said last month it would negotiate possible repayment with investors who lost money following the default of a savings product a former employee was suspected of promoting without authorisation.

The outstanding balance of banks' wealth management products might have reached 13 trillion yuan (HK$16.2 trillion) by the end of last year, Fitch said.

The regulator also forbade banks and their employees from participating in underground lending.

Banks should continue to curb loans to local government financing vehicles and the real estate industry, while at the same time offering support to "key" state projects and ensuring growth in lending to small firms and agriculture-related businesses was no less than the overall loan growth rate for the year.