Chinese banking regulator releases long-awaited draft rules for banks' WMPs

CBIRC urged banks to manage WMPs based on net value.

Reuters reports that the China Banking and Insurance Regulatory Commission (CBIRC) has released much-anticipated guidelines on the wealth management products (WMPs) held by Chinese banks.

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The regulator stipulated the WMPs should be managed based on net value and that banks should standardise the management of their fund pools in order to clamp down on shadow banking risk.

As of end-June, the outstanding amount of non-guaranteed bank WMPs stood at $3.09t (RMB 21t) with about 15% invested in non-standard debt assets or what has become known as shadow lending.

Also read: China's entrusted loans fall to 3.5% in January to April as banks shun shadow finance

To put a halt on such off-balance sheet activities, CBIRC also requires banks to strengthen liquidity management and stress test to control risk as they will not be allowed to use WMPs to invest in any bank WMPs or provide “channel service” for other institutions to bypass regulations.

The new rules will lower the minimum amount of client subscription to any single public WMPs to $1,488 (RMB 10,000) from $7,441 (RMB 50,000).

The move prompted a growing number of Chinese banks to set up independent asset management subsidiaries following intensified regulatory scrutiny on the $15t sector. Bank of Communications was the latest to jump in on the burgeoning spinoff trend after the lender announced its plan to invest $1.25b (8b yuan) to set up an asset management subsidiary in Shanghai.

The move comes on the heels of four other smaller lenders China Merchants Bank, Huaxia Bank, Bank of Beijing and Bank of Ningbo, who have similarly applied to spin off separate asset management units, according to the South China Morning Post.

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