BEIJING Dec 11 China has set up a committee of
senior banking executives to oversee the burgeoning category of
wealth management products, shortly after the failure of one of
the products led to increased scrutiny of banks' liabilities.
The China Banking Association Specialist Committee on Wealth
Management Products will tighten standards over the sale and
risk management of the investment products, which are highly
sought after by depositors seeking higher interest rates. The
Banking Association reports to China's banking regulator and
comprises most major national and local banks.
As of the end of September, the amount of outstanding wealth
management products distributed by Chinese banks had reached
6.73 trillion yuan ($1.08 trillion), an increase of 47 percent
over the end of 2011, Du Jinfu, the head of the discipline
commission at the China Banking Regulatory Commission told
reporters at a press conference to launch the new committee on
Banking regulators are worried about a crisis of confidence
in the products, following investor protests at Hua Xia Bank
after a product sold through its Jiading branch in a
suburb of Shanghai failed to pay out upon maturity late last
month. The bank says a branch employee sold the product without
Senior Chinese banking officials had previously expressed
concern over the proliferation of the products, many of which
channel money into the opaque shadow banking system where it is
lent to real estate developers and other businesses that cannot
access normal bank loans.
Most notably, Xiao Gang, the chairman of the board of Bank
of China , called the products a "Ponzi
scheme" in an editorial in the official English-language China
Daily in October.
Du warned that some banks do not follow regulations when
selling wealth management products, highlighting inappropriate
promotions, not handling customers' complaints properly or not
disclosing information completely.
But he defended the practice of selling the products, which
allow banks to compete for depositors with attractive interst
"Some banks' board of directors and top executives do not
fully realised the importance of developing wealth management
products and they haven't come up with a strategy regarding this
business, which could help them transform their operation models
and improve competitiveness," Du told reporters.
Wealth management products distributed by banks made up 18
percent of total social financing in the first three quarters,
Du said. That measure is considered to be a better yardstick of
the credit available in the Chinese economy than data on
traditional bank loans.
The new committee is headed by executives from Industrial
and Commercial Bank of China , with vice
directors drawn from the biggest state-owned banks while
committee members include the major joint stock or regional
Chinese banks sell to their customers a mix of proprietary
and third-party wealth management products, only some of which
have principal or interest guaranteed. Some are directly backed
by specific loan projects while others are vague about the
source of their returns. Because they are sold by banks, the
broader public tends to view them as safe.
Critics worry that the products are difficult for banks to
manage because of their fluctuating interest rate and tenure,
and because the underlying assets are often opaque, potentially
exposing banks and their customers to risky loans whose full
extent is unclear.
Although Hua Xia is expected to assume some liability for
lack of internal controls, it says it should not be responsible
for the failure of the wealth management product, issued by a
third party called the Zhongding Wealth Management Center linked
to a number of businesses in the inland province of Henan.
In a sign of the sensitivity of the case, reporters
attending the press conference were told not to ask about Hua
Xia. Reports by some Chinese media on the Zhongding product
failure have been removed from their websites.
($1 = 6.2451 Chinese yuan)
(Reporting By Zhang Shengnan, Aileen Wang and Lucy Hornby,
Editing by Jonathan Thatcher)