Bank-backed asset securities in China hit $131.12b in 2018

Almost 30 banks have unveiled plans to set up WM units following clearer policies.

New asset backed securities by Chinese banks rose to $131.12b (RMB880b) in 2018 from $81.06b (RMB544b) the previous year as lenders free up more space in their balance sheets for new lending following updated regulation on asset management products, according to Natixis.

New venues for banks to offload their assets have proliferated after regulators set out new rules for the establishment of wealth management subsidiaries in 2018 with nearly 30 banks including Bank of Communications, China Merchants Bank, Huaxia Bank and Bank of Beijing joining the fray.

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Lenders have been permitted to create wealth management units that could bypass regulatory harmonisation which require banks to provision for both on and off balance sheet wealth management products. The new guidelines also tackle implicit guarantees, capital-asset pooling, investment in non-standard credit assets (NSCAs), over-leverage and channel businesses to bring the business in line with international standards and reduce room for regulatory arbitrage.

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"However, with the wealth management arms of banks now allowed to invest in stocks and up to 35% of their total assets into “non-standard assets”, this could provide a leeway for shadow banking," Alicia Garcia Herrero, chief economist at Natixis noted in a report.

Lenders in China previously had limited options for asset management activities as they were not allowed to invest directly in private equity funds or listed securities.

The tighter regulation comes as Beijing spearheads a widespread crackdown on the country’s $15t asset management sector by closing loopholes that previously allowed banks to escape regulatory scrutiny particularly on shadow banking products and off-balance sheet activities.