(Yicai Global) Dec. 3 -- Wealth management products are an important source of business for China's major commercial banks amounting to CNY22 trillion (USD3.2 trillion). Last weekend, Chinese regulators have now issued new rules on commercial banks' wealth management subsidiaries.
"Wealth management units are like a super-license of trust plus public offering. Commercial banks set up such units to carry out asset management business, which leads to risk isolation within the business and its nature of asset management," Zeng Gang, director of the bank research office of Institute of Financial Policy, Chinese Academy of Social Sciences, told Yicai Global.
The new rules are basically consistent with the previous draft version released in October for public opinion, which stipulates that the minimum registered capital of wealth management unit must be CNY1 billion (USD144 million). The bank units are allowed to invest wealth management products directly in stocks and individual investors are not required to purchase wealth management products at a bank's office the first time.
"Bank wealth management subsidiaries are not allowed to invest their wealth management products directly in credit assets, nor directly or indirectly in major shareholders' credit assets and the right to yields on them, nor directly or indirectly in secondary asset-backed securities issued by major shareholders. They can't invest wealth management products issued to non-institutional investors directly or indirectly in the right to yields on bad assets," according to the new regulations.
This means that bank units can participate in all the other investment targets and their business licenses become the "master license" in the wealth management market.
Public data shows that the balance of non-guaranteed bank wealth management products was CNY22.3 trillion at the end of August. The market waited for the new regulations since September and the data obtained by Yicai Global shows that the balance was CNY21.8 trillion at the end of September and CNY22.4 trillion at the end of October. The scale of bank wealth management products fluctuated slightly with overall stability.
What is more noteworthy is that the new rules are modified based on feedbacks in the three aspects of equity management, self-owned capital investment, and internal control isolation and transaction control. Banks cannot park more than 20 percent of their funds in a subsidy to issue wealth management products and the funds for investing in a single wealth management product should not exceed 10 percent of the banks' own funds. The regulations also made room for the future introduction of domestic and foreign shareholders by the subsidiaries, saying that shareholders will not transfer the equity in five years except for additional approval.
Bank units can invest private wealth management products directly in stocks and publicly-funded wealth management products in stocks via public offering of funds. They are allowed to invest publicly-funded wealth management products directly in stocks now, a source from the China Banking and Insurance Regulatory Commission said.
18 banks have announced plans to establish wealth management units till now, including the major five state-backed banks, eight joint-equity commercial banks and five city commercial banks. The registered capital of major banks all exceeds CNY10 billion, with Industrial and Commercial Bank of China topping the list for CNY16 billion. The registered capital of joint-equity banks is around CNY5 billion and that of the city commercial banks ranges from CNY1 billion to CNY2 billion.