China tells banks to curb wealth man­age­ment funds

The Pak Banker - - COMPANIES/BOSS -

China's cen­tral bank has told lenders it will re­quire greater con­trol over the amount of wealth man­age­ment prod­uct funds they give to bro­ker­ages and other fi­nan­cial in­sti­tu­tions to man­age, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter.

The Peo­ple's Bank of China held a meet­ing with large com­mer­cial banks Mon­day, the peo­ple said, ask­ing not to be iden­ti­fied be­cause the mat­ter is pri­vate. It told lenders it will also im­pose more lim­its on the amount of pro­pri­etary funds man­aged by other in­sti­tu­tions, and that it will tighten con­trol of lev­er­age taken on when buy­ing bonds, they said.

Chi­nese banks have been scal­ing up their wealth man­age­ment busi­nesses as they vie for de­posits. Stan­dard & Poor's es­ti­mates the bank­ing sec­tor's out­stand­ing off-bal­ance-sheet wealth man­age­ment prod­ucts grew by 35 per­cent to 13.6 tril­lion yuan ($2.1 tril­lion) in 2015, it said in a re­search note dated Jan. 28. China's bank lend­ing may have soared last month to a record 2 tril­lion yuan amid slow­ing eco­nomic growth, ac­cord­ing to a cen­tral bank re­searcher.

"This is clearly aimed at con­trol­ling risks in the bank­ing sec­tor," said He Xuan­lai, Sin­ga­pore-based credit an­a­lyst at Com­merzbank AG. "It's not a stand­alone move; it's ac­tu­ally in line with the tight­en­ing in bill-fi­nanc­ing, fol­low­ing re­cent me­dia re­ports of fraud cases."

The PBOC didn't re­spond im­me­di­ately to a faxed in­quiry. Grow­ing re­liance on wealth man­age­ment prod­ucts to man­age reg­u­la­tory cap­i­tal ra­tios "could un­der­mine the banks' true cap­i­tal­iza­tion be­cause a ma­jor­ity of th­ese off-bal­ancesheet WMPs just serve as a handy fund­ing tool rather than a chan­nel to off­load credit risks," an­a­lysts at S&P led by Qiang Liao wrote in the note.

"As in­vestors un­wind po­si­tions to meet reg­u­la­tory re­quire­ments, liq­uid­ity is likely to dry up in the next few weeks, weigh­ing on bond mar­ket per­for­mance," Com­merzbank's He said. "The PBOC may also need to in­ject ad­di­tional funds into the mar­ket to off­set the de-lev­er­age."

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