China to Order Investment Products Carried on Bank Balance Sheets

飞雪寒冰

The China Banking Regulatory Commission is likely to compel banks to carry funds raised for wealth management on their balance sheets, the latest move signaling stricter regulation and monitoring of the business.

The balance sheet treatment is expected to result in banks holding more capital in reserve, restricting their ability to expand. The rule is likely to be announced this week.

飞雪寒冰

The rule "will strengthen regulation of banks' wealth management services significantly. But forcing banks to take the assets onto their books will increase the work load of regulators," said Yuan Zengting, deputy director of the Center for Financial Products and Services at the Chinese Academy of Social Sciences.

The new regulations will also feature a single-borrower loan limit of 10 percent of the bank's capital where wealth management funds are used to extend loans to trusts.

"It means that banks have to operate wealth management products as they manage loans, but they are actually two different types of business," said an official responsible for financial product design at a major commercial bank.

飞雪寒冰

The average performance of wealth management products in 2009 was stronger than that of term deposits and stocks as measured by the Shanghai Composite Index, even though some of wealth management products suffered losses, said the CASS' Yuan.

According to the latest data published by CBRC, there were 479 wealth management products in China, or 12 percent of the total, recording book-value losses at the end of the first quarter of 2009.

"It is necessary for the CBRC to tighten regulation of banks' wealth management businesses, but it should do that by creating a third party to monitor them, not by turning to over-regulation," said World Bank economist Wang Jun.