Yields on bank wealth management products (WMP) have seen a sharp decline less than two months after the release of new asset management regulations that removed the “implicit guarantees” that undergird the instruments.
Data from Rong360 indicates that the average projected yield on bank WMP’s was 4.82% in May, for a slide of 0.03 percentage points compared to April, and the third consecutive month of decline.
The declines coincide with the launch of new asset management regulations by Beijing at the end of April banning banks from providing guarantees for the principal and interest of WMP’s, which are a major source of funds for smaller lenders and considered a key component of the Chinese shadow banking sector.
According to analysis from Rong360 a primary cause for the ongoing decline in projected WMP yields is the recovery in M2 growth rates and an increase in funds outstanding for foreign exchange, as well as sliding growth in new loans.
Since the second quarter of 2018 Chinese liquidity has been comparatively ample, putting pressure on yields for bank WMP’s.
The new asset management regulations have led to a steady reduction in the share of bank and principal-guranteed WMP’s, as well as greater issuance of net value WMP’s, which are more akin to open-end funds that investors can redeem at any time, and whose returns are based on regularly announced net asset values.
The issuance of structured deposits has also seen an increase, with Chinese banks using them as an alternative funding channel to replace principal-guaranteed WMP’s.
Rong360 data indicates that a total of 12,097 bank WMP’s were issued in May, for an on-month increase of 1,248 products, or 10.32%, yet a decline of 646 products, or 5.07%, compared to the same period month last year.
A total of 136 net value WMP’s were issued in May, for an on-month surge of 72.15%, accounting for a 1.12% share of all issuance.