Two ‘Big 4’ Banks Approved for Wealth Management Units
China’s banking regulator approved plans by two of the biggest state-owned banks to set up wealth management units, a move that could shake up the $4.4 trillion wealth management product (WMP) industry.
The Bank of China and China Construction Bank became the first two banks to win approval from the China Banking and Insurance Regulatory Commission (CBIRC) to establish WMP units, the regulator said Wednesday in a statement. Multiple commercial banks are working on plans to set up such units, the CBIRC said.
The approval comes three weeks after the CBIRC unveiled long-awaited rules governing commercial banks’ asset management subsidiaries, taking a relaxed stance on how banks can invest wealth management funds.
The new rules allow banks’ asset management units to raise public stock funds and invest as much as 35% of total assets under management in nonstandard credit assets, according to the CBIRC.
The rules, providing these WMP subsidiaries with a backdoor to invest in stocks, show that the government is easing restrictions on WMP funds entering the shadow banking sector, a crucial funding source for private enterprises that have long struggled to obtain credit from the official banking system.
Once approved, banks have six months to create such units. If banks can’t complete establishment within six months, they can apply for an extension of no more than three months, according to the rules.
Some banks have already rushed to recruit talent with stock investment experience, a source at a public mutual fund told Caixin.
“They need people in fixed income and equity positions,” the person said. “It’s definitely too late for banks to train their own team, so the quickest way is to recruit from public mutual funds.”
Several bankers acknowledged that a lack of investment research capability would be the biggest weakness for commercial banks’ asset management units.
Banks used to make easy money through nonstandard credit operations, but capital market investments have a much higher requirement on research capabilities, a banker told Caixin.
Such wealth management units will face intensifying competition not only from similar units of other banks but also from established asset management firms.
So far, more than 20 banks have plans to set up wealth management units, including the other two of the state-owned “Big Four” banks, the Industrial and Commercial Bank of China (ICBC) and the Agricultural Bank of China (ABC).
China Construction Bank’s proposed wealth management unit is the largest so far, with a registered capital of 15 billion yuan, and Bank of China’s unit has 10 billion yuan of registered capital, both well above the required capital of 1 billion yuan.
Unlike banking operations that require large amounts of capital, wealth management is a light-asset business. The state-owned banks poured billions of yuan into their new wealth management units to show their strength, analysts said.
The outstanding amount of bank WMPs stood at 29.54 trillion yuan at the end of 2017, according to official data. A crackdown on financial leverage and shadow banking slowed the growth of WMPs last year to 1.69%, compared with annual growth of as much as 50% over the past few years.
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