The China Banking and Insurance Regulatory Commission will soon introduce detailed rules targeting bank wealth management products (WMP’s) in a bid to better control risk in the Chinese financial sector, according to sources speaking to Reuters.
According to the sources the new rules will restrict the exposure of bank WMP’s to non-standard investments or “shadow banking” products.
At present these investments by Chinese lenders are not permitted to exceed 35% of the outstanding balance of their WMP’s, or 4% of total assets.
Official data indicates that as of the end of 2017 562 banks had 29.54 trillion yuan in outstanding WMP’s.
The rules will arrive following the launch of new regulations governing China’s $15 trillion asset management sector, which specifically target the “implicit guarantees” undergirding bank WMP’s that are considered by authorities to be an acute source of moral hazard.
While the new regulations outline a transition period lasting until 2020, many banks have already withdrawn from the sale of wealth management products, as well as switched to structured deposits or large-denomination certificates of deposit instead, in order to continue to provide guarantees for investment returns to clients.