The launch of China’s new asset management regulations is expected to spur the issuance of net asset value wealth management products (WMP’s) by domestic banks.
The “Guidance Opinions Concerning Standardisation of Asset Management Operations by Financial Institutions” (关于规范金融机构资产管理业务的指导意见) are on the verge of implementation, following their approval by China’s Central Comprehensively Deepening Reforms Commission on 28 March.
The release of a draft version of the asset management rules in November 2017 caused much consternation within Chinese banking circles, due to concerns that its targeting of the “implicit guarantees” underlying WMP’s could exacerbate systemic financial risk by starving smaller lenders of funds.
Industry observers now say that the regulations could serve to expedite the popularity of net asset value WMP’s (净值型理财产品) issued by banks, given that they mandate a ban on financial institutions guaranteeing the principal or yield of products when undertaking asset management operations.
Conventional bank WMP’s are primarily closed-end in nature, with the yields for products advertised and paid out to investors based on expected returns.
Net asset value WMP’s are akin to open-end funds, however, with returns based on regularly announced net asset value, and investors permitted to redeem products at any time.
Analysts say the absence of a fixed return means that Chinese banks are very likely to switch to net asset value WMP’s under the new asset management regulations.
One analyst from Rong360 said to Securities Journal that “the formal implementation of the new asset management regulations means banks must change models…removing implicit guarantees and switching to a net asset value model has been mooted for many years now.”
PY Standard (普益标准) expects that over 90% of Chinese bank WMP’s will switch to the net asset value model as a result of the new rules.
“As the ‘big brother’ of the asset management sector, bank asset management channels must make major adjustments to the current business model,” said one PY Standard researcher to Securities Journal.
“The need to switch to a net asset value model highlights the cautious attitude of regulators to risk management of the current expected returns model, and the switch to net asset value WMP’s by banks is imminent.
“Following clear demands from regulators, in future at least 90% of bank WMP’s will switch to net asset value products.”
The data indicates that net asset value WMP’s currently comprise only a tiny percentage of all bank WMP’s issued, however, even in the wake of roaring issuance growth.
Figures from PY Standard indicate that in 2017 banking sector financial institutions issued a total of 190,721 new WMP’s, of which expected return WMP’s accounted for 189,438, and net asset value WMP’s just 1183.
While the number of net asset value WMP’s issued in 2017 posted a year-on-year rise of 56.27%, they still accounted for just 0.6% of the total.
In the first quarter of 2018 Chinese banks issued a total of 433 net asset value WMP’s, as compared to 63 in the same period of 2017.
These products nonetheless accounted for only 1.6% of the nearly 27,000 WMP’s issued during the same period.