China excludes bank wealth products from shadow banking -sources

BEIJING Thu Dec 6, 2012 3:28pm GMT

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BEIJING (Reuters) - China will stop including 13 trillion yuan (1.30 trillion pounds) in short-term bank investment products in official estimates of the country's shadow banking sector, sources said on Thursday, in a move to downplay risks posed by off-balance sheet lending.

Shadow banking, which has traditionally included unregulated activities such as pawn broking and peer-to-peer lending, has long been pointed to as a possible crack in China's financial system.

So-called "wealth management products" (WMPs) - short term funds sold at many retail banks in China that are then reinvested - have received particular attention. That is because many funds raised through the issue of such products have flowed into areas such as real estate, a sector that Beijing was trying to curb due to fast rising prices.

WMPs should be brought on to bank balance sheets if they are capital guaranteed, said three sources familiar with a ruling from the China Banking Regulatory Commission.

WMPs that are not capital guaranteed can continue to be left off balance sheets, but will not be included in estimates of shadow banking, added the sources, who declined to be named because the ruling was not yet public.

Calls to the CBRC were unanswered after office hours.

Some 13 trillion yuan ($2.1 trillion) worth of WMPs are expected to be issued this year, according to Fitch Ratings, which says the opacity surrounding the sector is a concern.

This week, mid-sized Chinese lender Hua Xia Bank (600015.SS) blamed a rogue employee for selling a WMP that eventually went bad.

In the last few years, sales in China of WMPs - some with terms as short as a few weeks - have soared, as banks compete for deposits with higher interest rate products than those offered on savings accounts.

Concern has grown that a large portion of the products do not explain where the money is actually going, with regulators worried about the panic that could ensue if the products begin to fail to repay investors.

(Reporting by Beijing newsroom; Writing by Kelvin Soh; Editing by Mark Potter)

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