CBRC Renews Push to Regulate Wealth Management as Credit Expands

CBRC Renews Push to Regulate Wealth Management as Credit Expands

The China Banking Regulatory Commission said it will scrutinize lenders’ wealth-management and short-term note sales, control increases in bad loans and focus on debts in an attempt to limit “severe risk.” The regulator has told banks to improve the accuracy of how they classify loans, to monitor non-performing loans and to control total lending to local government financing vehicles, according to a statement posted on the CBRC website yesterday. “The authorities are serious about the whole explosion of wealth management — and they must also be concerned at the scale of credit creation,” Michael Shaoul, chairman of New York-based Marketfield Asset Management LLC, said in an e-mail. First-quarter credit creation was about $1 trillion, he said.

Chinese banks rely on wealth-management products, which pay higher rates than regulated deposits, to retain clients who are diverting savings to other investments. The sales are transforming the stable and cheap deposit base that has supported lenders into one that is “more mobile, expensive and short-term,” creating repayment risk, Fitch Ratings has warned. The outstanding balance of banks’ wealth-management products may have been 13 trillion yuan ($2.1 trillion) at the end of 2012, compared with 8.5 trillion yuan a year earlier, according to Fitch. The pace of expansion is faster than during the 2009 credit boom and is taking place through wealth management and corporate debt-issuance systems, not through the better regulated bank-loan system, Shaoul said.Scale, Control

“The authorities now have a problem of both scale and control to deal with,” Shaoul said. Bad loans right now aren’t the main concern, it’s “the notion that an explosion of credit granting will lead to problems later on,” he said.

The CBRC told lenders last month to limit investments of client funds in debt that isn’t publicly traded and to isolate such risks from their operations. Such investments can’t exceed 35 percent of all funds raised from the sale of wealth- management products, or 4 percent of the lender’s total assets at the end of the previous year.

Outstanding loans to small and micro companies rose 21 percent at the end of March from a year earlier to 15.5 trillion yuan, according to the statement. Outstanding loans for social housing projects rose 35 percent to 700.6 billion yuan, the CBRC said.

To contact the reporter on this story: Joshua Fellman in New York at jfellman@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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