China watchdog tells banks to check capital pool assets

PUBLISHED : Wednesday, 13 March, 2013, 12:00am
UPDATED : Wednesday, 13 March, 2013, 5:50am

The mainland's banking regulator has ordered lenders to complete a probe of the so-called "capital pool" operations of their wealth management products by the end of next month, in an attempt to crack down on the products that pose higher risk to investors because of a lack of transparency.

The China Banking Regulatory Commission told banks in January to finish the probe in three months, the China Securities Journal reported yesterday, citing unnamed sources.

The regulator also warned that banks would be barred from selling wealth management products if they flouted rules, the report said.

Capital pool operations refer to banks' channelling of investors' money into a pool of assets that includes a variety of wealth management products rather than a single product.

Chen Xingyu, an analyst with Phillip Securities in Shanghai, said capital pool wealth management products were riskier as they were not transparent.

"As an investor, you may not know what you are exactly buying," Chen said. "For some investors, they are buying the product because of the brand name of the bank selling it."

As the products have been attracting investors because of high returns, Chen warned against possible liquidity risk to banks if they were unable to get steady funding.

Cai Esheng, a vice-chairman of the commission, said last week the regulator would step up efforts in regulating wealth management products as any problems with them would hurt the interest of consumers.

Chen said capital pool wealth management products were not well-regulated as they were still new to the market. The problem would be manageable as they posed no systemic risk to the mainland's banking sector, he said, but added, "if not regulated, the products could become the next Lehman minibonds or develop into Ponzi schemes."