China tells banks to curb wealth management funds
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."