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Wealth-Management Products Account for 18Pct of Total Social Financing in Jan.-Sept. Official

12-11 15:21 Caijing
China's outstanding wealth-management products hit 6.73 trillion yuan ending September, up nearly 47 percent from 4.58 trillion at the year end of 2011

The risky wealth management products sold by Chinese banks have accounted for 18 percent of China's total social financing in the first three quarters in the year, said Du Jinfu, the disciplinary head of China's banking regulator.

Mr. Du made the remark at a banking summit which also witnessed the establishment of the wealth-management products arm under the China Banking Association on Tuesday amid signs of alarms at risks of such products when investors in some cases found themselves unpaid.

China's outstanding wealth-management products hit 6.73 trillion yuan ending September, up nearly 47 percent from 4.58 trillion at the year end of 2011, according to the offiical. Since 2005, bank customers have boosted their holdings of wealth-management products at a speed of nearly 100 percent annually, he said, adding that the short-dated investments have also generated a return higher than that on bank deposits.

In 2011, customers of 160 banks across the country received a return of 175 billion yuan on wealth-management products.

"The wealth-management products issued by banks have, by funding bond, equity and other direct financial instruments, have acted as a bridge between households savings and direct financing and have played an indispensable role in improving our social financing structure," Du said.

Despite recent year's boom, Du said the market is still far from being mature. With the investments only accounting for 5 percent of banking assets, and the accumulation of personal wealth, banks' wealth-management products are coasting into "a period with stable and persistent development."

Chinese authorities detained several persons involved in an illicit sale of wealth management products at Huaxia Bank, which defaulted and generated losses of up to 100 million yuan for investors last week.

The so-called shadow banking in China, which consists of trust products, wealth management products and other off-balance-sheet loan-like claims held by banks, has triggered concerns over China's banking industry.

The investigation and investors' anger are credit negative for Chinese banks and highlight the risks of implicit liability in the banks' fast-growing wealth management product business, Moody's said in its latest report, referring to Huaxia's case.

The rating agency warned that "any legal liability assigned to the bank would set aprecedent for banks and investors in future similar cases. We see such risks as arecurring credit risk as banks strive to introduce new products to increase non-interestincome."

Chinese media reported yesterday Industrial and Commercial bank of China, the world's biggest lender by market value, is facing a trust loan default of as much as 3 billion yuan by a Shanxi-based mining company.

 

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