With relaxed restrictions on how wealth management product funds can enter the shadow banking sector, the country’s largest lenders are launching independent wealth management units.
At least 22 commercial banks in China, including the state-owned «Big 4,» are planning to launch independent wealth management subsidiaries, the Financial Times reported (behind paywall).
New rules by the China Banking and Insurance Regulatory Commission (CBIRC), which took effect in early December, allow the asset management subsidiaries of commercial banks to raise public stock funds, as well as invest up to 35 percent of their assets under management in non-standard credit assets.
The Bank of China announced in November that it would invest 10 billion yuan ($1.5 billion) in its independent wealth management subsidiary, which prompted the other three state-owned banks to announce the setting up of their own units. The Industrial and Commercial Bank of China (ICBC) said it would invest up to 16 billion yuan, while the Agricultural Bank of China (ABC) and China Construction Bank (CCB) said it would put up 12 billion yuan and 15 billion yuan respectively.
New Regulatory Framework
The rules are part of a new regulatory framework that cover the whole asset management industry. While these rules aim separate the wealth management business of banks from their other activities, which would prevent financial catastrophe if the investments sour, this move could also help stimulate China’s stock markets, which have been in a slump.
According to Chinese financial news service Caixin Global, the outstanding amount of bank wealth management products was almost 30 trillion yuan at the end of 2017, and the crackdown on financial leverage and shadow banking slowed the growth of such products to 1.69 percent, compared to growth rates of up to 50 percent in recent years.
