Banks Covertly Expanding Debt Via Wealth Management Products: Chinese Central Bank

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People’s Bank of China vice-governor and head of the Banking Accounting of Society of China Ma Delun has declared that wealth management products are not a genuine form of asset management, but a covert means for Chinese banks to expand their own debt loads.

Speaking at Sina’s “2017 China Finance Forum”held in Qingdao from 17 – 18 June, Ma noted that WMP’s lack structured or standardised products, as well as inadequacies when it comes to customer service and the disclosure of yield risk.

“All investors in WMP’s have this mentality – that I buy them at the bank, and I must have my yield, and if I can’t be compensated, then I must break even

“These are areas that in future all require breakthroughs.”

Wealth management products have emerged as a mainstay of China’s shadow banking sector in recent years, enabling lenders to dodge regulatory curbs to draw more funds from depositors by offering hiring rates than standard accounts, as well as shift liabilities off balance sheet.

In addition to providing higher returns than standard deposit accounts, the products are highly popular with investors due to the perception that they enjoy an “implicit guarantee” from banks.

Ma noted that as of the end of last year the balance of outstanding WMP’s was 18.5 trillion yuan, as compared to China’s 57 trillion yuan in savings, its 1.744.2 trillion yuan in life insurance policies, and 1.64 trillion yuan in personal asset trust plans.

“Many people [in China] still use the simplest methods when it comes to financial management,” said Ma. “Looking at customer demographics, investors in WMP’s are still people at the middle-class level or above with steady incomes – the majority of the normal public do not enter this sector.”

During his speech Ma at the forum also noted that Fintech would have a huge shock and impact on the financial sector, and that within only a few brief years the Internet had penetrated every aspect of finance.

“Freedom of information is actually extremely important for financial management in future,” said Ma, with reference to the rise of big data and the complex impacts that it will bring to financial transactions as well as market pricing mechanisms.

Despite his misgivings about the current state of WMP’s, Ma appeared sanguine about the potential for Fintech to bring greater opportunities to ordinary Chinese by lowering the threshold for investing in the instruments.

 

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