Banks warned about wealth management products

SHANGHAI: China’s banking regulator told the nation’s lenders to “strictly” supervise the design, sale and investment of their wealth management products as it seeks to curb rising risks from banks’ off-balance sheet businesses.

Banks were 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 in a statement on its website yesterday. Lenders were also required to separate accounting and management of products that offered fixed and floating returns, the regulator said.

Chinese banks have been relying on wealth management products, which offer higher returns than benchmark deposit rates, to dissuade households from moving their savings elsewhere over the past few years. Fitch Ratings warned last month that this “more mobile, expensive and short-term” funding base might create repayment risks and present challenges to profitability and asset-liability management for lenders.

Huaxia Bank Co, based in Beijing, said last month it would negotiate possible repayment with investors who lost money following the default of a savings product that an ex-employee was suspected of promoting without the lender’s authorisation.

The outstanding balance of banks’ wealth management products may have reached 13 trillion yuan (US$2.09 trillion) by the end of last year, compared with 8.5 trillion yuan the previous year, according to Fitch.

The regulator also forbade lenders and their employees from participating in underground lending. – Bloomberg