Increase in wealth management products
Print Edition
The outstanding balance of wealth management products issued by Chinese banks continued to rise in the second half of 2017, despite increased regulatory scrutiny on the market since early last year, according to a latest report from Fitch Ratings.
Total wealth management product issuance rose 3 percent to 173.6 trillion yuan (US$27.7 trillion) between January and December. As of the end of last year, the outstanding wealth management products gained 2 percent annually to 29.5 trillion yuan, equivalent to around 36 percent of the country’s gross domestic product, the report said.
Fitch said the outstanding balance increased 4 percent in the second half last year, with the slowdown being “significant” compared with the annual growth of 24 percent in 2016 and a compound annual growth rate of over 50 percent from 2011 to 2015.
Joint-stock commercial banks again led the wealth management products market with 40.5 percent, despite a 2 percent decline in their product balance at the end of 2017. City commercial banks' wealth management products balance grew again in 2017, up 7 percent.
Fitch said the resilience of overall issuance underscores that it would be difficult for the authorities to reduce activity, given that it represents nearly 17.5 percent of system bank deposits and around 40 percent of joint stock bank deposits.
The report said that the authorities have made “some success” in curbing associated contagion and liquidity risks, by engineering a noticeable 51 percent drop in inter-bank wealth management product investment from early 2017.
The incentives for banks to invest in relevant products fell considerably, as inter-bank market rates increased due to tighter liquidity as part of the regulatory clampdown, and banks that fund themselves in the inter-bank market are no longer able to make a profit by reinvesting in wealth management products.
The report said that a more aggressive crackdown would have the potential to disrupt financial markets and trigger disorderly deleveraging, as 8 percent of wealth management products are invested in government and quasi-government bonds, 34 percent in financial institution and corporate bonds and 16 percent in non-standard credit assets.
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