Exclusive: Chinese regulator asks banks to cut wealth management yields - sources

Tue Jan 12, 2016 4:26am EST
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By Zheng Li and Nathaniel Taplin

SHANGHAI/BEIJING (Reuters) - China's banking regulator and main bond clearinghouse have asked commercial banks to reduce rates they offer on high-yielding wealth management products (WMPs), five sources told Reuters, an apparent back-pedalling on commitments to let markets price credit.

The move to suppress returns on WMPs would cut the cost of capital for cash-strapped firms relying on the estimated 20 trillion yuan ($3 trillion) industry for costly credit to stay afloat, and reduce the appeal of such products to retail investors, which could boost alternative investments such as Chinese stocks, which have had a dreadful start to 2016.

WMPs, marketed by banks but often backed by third-party loans or other risky assets, offer interest rates of up to 10 percent or higher on some products, even though domestic benchmark rates and bond yields have fallen sharply over the past year.

The high level of precarious indebtedness is of growing concern as Chinese policymakers try to bolster economic growth and financial stability at a time of high volatility in its currency and share markets.

Reuters reported on Tuesday that new non-performing loans (NPL) held by Chinese banks more than doubled in 2015 from the previous year.

"Given that CBRC (China Banking Regulatory Commission) has already said that the key task for 2016 will be risk control, it's quite telling that they're now telling banks to reduce these WMP yields," said Oliver Barron, an analyst at the NSBO macro consultancy in Beijing.

"Many trust loans, for instance, were issued two years ago when commodity prices were still sky high, and any products that sent funds to those parts of the industrial sector may have repayment difficulties at the old high rates."

The sources, who have direct knowledge of the matter, said the regulator and clearinghouse called the banks to a "training session" last week to offer informal guidance on lowering WMP rates but did not specify any particular class of WMP.   Continued...

A woman counts yuan banknotes after withdrawing cash from an automatic teller machine (ATM) in Hefei, Anhui province, May 3, 2010. REUTERS/Stringer