Wealth Management Yields Ride High As Chinese Banks Scramble for Cash

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Returns on wealth management products continue to rise as banks vie against each other for scarce funds amidst China’s ongoing deleveraging campaign.

The Economic Observer reports that the annualised yield on wealth management products offered by banks in Beijing has risen to over 6% in many cases, while standard products provided by China’s big four lenders are all in excess of 5%.

The maximum reported yield is for a Bank of East Asia (China) WMP, which provides an annualised rate of 7%.

Data from Rong360 indicates that in May the average expected annualised yield for WMP’s was 4.24%, for a gain of 0.6 percentage points compared to April and the sixth consecutive gain since December last year.

According to banking insiders these gains in WMP yields show no signs of abating.

“Last year the market rate reached its maximum at the end of the year, and this year the mid-year rate has already exceed the end of last year’s,” said the WMP manager at a big state-owned bank to the Economic Observer. “The current funds scarcity will continue to tighten, and institutions are ‘scrambling for cash.’

“The yields on wealth management products also show signs of continuous increase.”

Wealth management products are a key component of China’s shadow banking sector that have posted booming growth in recent years, with lenders using them to attract funds by offering rates higher than those permitted for standard bank accounts, as well as to shift investments off balance sheet and dodge the constraints imposed by the banking regulator.

While their growth has flagged this year amidst heightened regulatory scrutiny, the instruments are now emerging as a last-ditch expedient for banks to access funds as the banking authority cracks down on interbank lending, and the central bank tightens up liquidity in order to deleverage the financial sector and tamp down on systemic financial risk.

In the opinion of banking insiders the heightened regulatory pressure on WMP’s, including traditional mid-year assessments as well as strict macro prudential assessments, will also push yields higher.

As they clamber for funds, some banks are also providing ultra-short term WMP’s with maturities of as little of three days, and annualised yields of 7%, which is indirectly driving up the average yield of the instruments.

 

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