Dec 20, 2016 06:28 PM

PBOC Reins in Wealth Management Products

(Beijing) — China's central bank has stepped up efforts to cut financial risks posed by the growing number off-balance-sheet wealth management products (WMPs) at a time when the interbank market is experiencing tightened liquidity.

Starting in the first quarter of 2017, the People's Bank of China (PBOC) will include off-balance-sheet WMPs in its Macro Prudential Assessment (MPA) system, a points-based framework adopted by the central bank at the start of 2016 to gauge risks in bank-credit exposure.

Rapid growth of WMPs contributes to financial risks and impedes the central government's goal of reducing financial leverage, the state-run People's Daily quoted a central bank official as saying on Monday. Capital allocation of funds raised through WMPs is not distinct from traditional credit loans, with investment going to bonds and even equities through special private banking services.

The outstanding balance of WMPs reached 26.3 trillion yuan ($3.8 trillion) at the end of the first half of 2016, up 11.83% from the beginning of 2016, according to the China Central Depository & Clearing Co. Ltd.

Several banks, including the Bank of China, the Industrial and Commercial Bank of China (ICBC) and China Merchants Bank, have raised annualized return rates on some of their WMPs by nearly 1 percentage point, but growth rates have still fallen short of expectations, which has dashed expansion hopes ahead of tightened supervision, bankers told Caixin.

The central bank's moves to tighten control of shadow banking comes as cash on the interbank market has been squeezed by a rising need for funds before the Chinese New Year holiday, and a recent bond market crash.

The central bank summoned executives of several big commercial lenders last week and urged stricter control over the size of off-balance-sheet WMPs, banking sources told Caixin. Several banks responded by halting loans to non-bank financial institutions, which needed cash to repay panicked investors during a bond market crash. The central bank then backpedaled, advising banks to offer long-term loans to non-bank institutions to maintain liquidity.

Some banks, including ICBC and the Postal Savings Bank of China, have recently redeemed tens of billions of yuan from several giant mutual fund management firms, further tightening liquidity, Caixin has learned.

"We have all been selling money market funds because of their low returns," said a senior bank executive. "As WMPs' returns can hardly cover their costs, we definitely need to allocate funds to investments that generate greater profits."

Current regulatory policies do not encourage banks to offer cash to non-bank institutions, a trader from a big commercial lender told Caixin. This will increase banks' credit loans beyond regulatory requirements, require greater capital provisions and result in low returns, an indication of the growing difficulties that regulators face in managing liquidity.

Contact reporter Dong Tongjian (

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