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  • Jul 23, 2014
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Small lenders battered by wealth product rules

Banking regulator puts limits on investments in 'non-standard' client assets not publicly traded

PUBLISHED : Thursday, 28 March, 2013, 11:12am
UPDATED : Friday, 29 March, 2013, 5:15am

The mainland stock market was Asia's worst performer yesterday as the banking regulator tightened rules on wealth management products offered by lenders.

Share prices for all mainland banks fell, with smaller banks the worst hit. The Big Four fell between 0.1 and 2.1 per cent, with Agricultural Bank of China down the most. ABC closed at HK$3.72, down 2.1 per cent from Wednesday. Small lenders took major hits because they have a higher concentration of non-standard wealth management products subject to the measures. China Minsheng Bank fell 7.9 per cent to close at HK$9.89. China Citic Bank and China Merchants Bank both shed more than 4 per cent.

The CSI 300 Index, which tracks companies listed on the Shanghai and Shenzhen exchanges, dropped 3.26 per cent to 2,499.3, followed by the Shanghai Composite Index, which slipped 2.82 per cent to 2236.3.

The China Banking Regulatory Commission ordered the banks to limit investments of client funds in so-called non-standard client assets that are not publicly traded.

Wealth management products pay higher rates than regulated deposits and mainland banks rely on them to retain clients. Investments in non-standard credit assets are capped at 35 per cent of all funds raised from the sale of the products, or 4 per cent of the lender's total assets at the end of the previous year, according to the regulator.

The value of outstanding wealth management products jumped two-thirds to 7.6 trillion yuan (HK$9.4 trillion) at the end of last year from 2011, the commission said.

Banks exceeding the limit might sell such assets, bring those products onto balance sheet or issue more liquid-asset based wealth management products, a Barclays report said.

"I think the commission's intention is to contain lenders moving credits off balance sheet under the guise of wealth management products," Standard and Poor's analyst Liao Qiang said.

Societe Generale China economist Yao Wei said the new rules could "cap the growth of risky wealth management products as well as limit future funding to the shadow banking system".

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