China strengthens oversight of wealth management products
April 30, 2013 Category Finance, Weekly
China will strengthen regulations on wealth management products to reduce financial risks, the China Banking Regulatory Commission (CBRC) said in report. Wealth management products carry higher interest returns than traditional deposits and are widely used by banks to finance projects such as real estate and infrastructure construction – projects for which normal bank loans are difficult to obtain. There were CNY7.1 trillion worth of outstanding wealth management products by the end of last year, the CBRC said. That marks a 13-time increase from the CNY500 billion in 2007. ‘‘Generally the individual investments in the instruments account for 62% of that total, while institutional investors and private banking customers account for 32% and 6% respectively,’’ the CBRC said. The defaults of such instruments last year have alerted the CBRC to risks not only to the depositors who are major investors but also to the nation’s financial system as a whole. The CBRC has unveiled new measures to rein in the rapidly-growing business by ordering lenders to keep separate accounts for each product and set aside capital as a buffer for potential losses. Banks are also ordered to check the underlying assets of the wealth management products, and to keep such assets to 35% of the banks’ total outstanding products, or 4% of their total assets, whichever is lower.
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