Across The Border | Fitch warns of over-reliance on wealth management products by smaller Chinese banks
Agency says they present key credit and liquidity risks
Fitch Ratings is warning that an over-reliance on wealth management products (WMPs) is putting China’s mid-tier banks and smaller financial institutions under increasing credit and liquidity risks.
In a note issued on Tuesday, the agency said that sales growth of WMPs slowed to a two-year low in the first six months of this year, dragged by declining investment returns.
According to the latest figures, issued last week by chinawealth.com.cn, which is owned the China Banking Regulatory Commission (CBRC), the outstanding balance of WMPs stood at 26.3 trillion yuan by the end of June, up 11.83 per cent from the beginning of 2016, or 17 per cent of deposits.
In its note, Fitch estimates that among mid-tier banks, however, WMPs were equivalent to 43 per cent of deposits at the end of the first half, up from 41 per cent six months earlier and just 22 per cent at the end of first half in 2014, which “makes them especially vulnerable”.
“These banks are disadvantaged in attracting deposits, compared with the five big state-owned banks, and face added pressure to keep their capital ratios above the regulatory bottom line,” said Jack Yuan, an analyst with Fitch Ratings.
Yuan and his team cited two major reasons why WMPs pose credit risks to banks.