China's wealth management sector needs to accelerate its development and transformation as it faces growing challenges, by moving into different and new areas, such as the global allocation of assets for high-net-worth individuals, leading bank executives said.
Apart from investing in nonstandardized debt assets, commercial banks could bring their groups' advantages into full play by developing a comprehensive set of business.
This could include insurance, leasing and investment banking, and exploring other types of wealth management products in the areas of equities, acquisitions and asset-backed securitization, said Yang Zhiyu, deputy head of the asset management department of Industrial and Commercial Bank of China Ltd.
Yang told a recent industry forum in Guangzhou that China should also speed up the transformation of its wealth management sector by turning it from being mostly focused nationwide, to being more into global asset allocation.
At present, only 5 percent of the assets of high-net-worth individuals in China are allocated overseas, compared with the global average of 24 percent. He added that such a huge gap indicated potential for growth.
Pan Dong, deputy head of asset management at China Everbright Bank Co Ltd, agreed with Yang that the proportion of overseas asset allocation was too small in China, which was unreasonable in terms of asset allocation and the fact that the renminbi was depreciating against the dollar.
"Despite China's tightening of its foreign exchange regulations and our lack of knowledge about overseas markets, we must build a team to study the financial markets of other countries," she said.
"At the same time, we should look for excellent investment managers overseas for cooperation."
Yang Zaiping, executive vice-president of the China Banking Association, said commercial banks faced big challenges they had not experienced before in terms of their wealth management business.
After China has fully liberalized its interest rates, he said, more than one-third of the banking sector's wealth management products－offering market-based interest rates that used to be higher than deposit rates－will lose their appeal to clients.
Furthermore, as China is undergoing a process of deleveraging and a reduction of excess capacity in industry amid an economic slowdown, investment returns in the real economy were falling, while financial risks were on the rise.
He said this has led to a drop in average rates of return for banks' wealth management products from 6 percent to around 3 percent.
The regulators were placing greater emphasis on control over financial risks. This, he said, was due to an increasing exposure to risks triggered by a growing number of financial products such as peer-to-peer lending, the practice of direct lending between unrelated individuals via internet platforms.
"To meet these challenges, the banks must bring their risk controls and their efforts to dig deep for greater returns into better balance," he said.
At the end of 2015, the balance of wealth management products held by the banks totaled 23.5 trillion yuan ($3.6 trillion), up by 56 percent year-on-year. That accounted for 26 percent of the total balance of 90.36 trillion yuan for wealth management products held by various kinds of financial institutions.
