The China Banking Regulatory Commission (CBRC), the country's bank regulator, has drafted new measures for the supervision and administration of wealth management products, and has been talking with banks to discuss the new controls.
The new measures were drafted based on a set of management rules issued by the CBRC in December 2014 on wealth management products, according to a report by the 21st Century Business Herald, citing several sources with knowledge of the matter.
According to the report, the CBRC is inclined to classify domestic banks into one of two categories: fundamental or comprehensive - in terms of a wealth management qualification. Banks in the fundamental category will be banned from investing in non-standard assets, meaning those not traded on the inter-bank bond market or stock exchanges. They include categories such as trust loans, entrustment loans and other credit products.
A bank's capital reserves will be one of the crucial factors in determining the classification, the report said.
"This would put small banks at a disadvantage, because it would raise hurdles to building a wealth management business," said Xi Junyang, a finance professor at the Shanghai University of Finance and Economics.
But Xi also stressed that unlike standard assets, which are traded on the primary market, non-standard assets are very hard to liquidate, which poses higher risks for the banks. Therefore, the government's tightened management on non-standard assets would also help control risks, especially for banks with fewer capabilities.
The CBRC is also likely to prohibit the issuance of classified asset management products by domestic banks, the report said. Classified asset management products have two sub-products, one priority and one secondary. The priority product is promised repayment first in the case of losses, with smaller returns. The latter yields higher returns but bears the brunt of losses.
The CBRC has already asked some commercial banks to suspend issuance of such products in May, as the government is mounting efforts to curb financial risk amid a rising number of debt defaults, Reuters reported in May.
Xi nevertheless noted that the wealth management business has been growing more important for domestic banks as they attempt to update their business model from one that mostly relies on reserves and credit to a more comprehensive model. "The wealth management business is one of the directions that the domestic banks have taken to develop. If it's throttled, it would greatly impact the banking sector," he told the Global Times on Tuesday.
According to the report, the CBRC is still studying the measures, and there might be changes in the final version.
According to a report by yicai.com on Wednesday, the CBRC has sent a draft of the new measures to domestic banks.
