Bank of China, China Construction Bank get wealth management units in shake up of $4.3trn industry

Pedro Gonçalves
Bank of China, China Construction Bank get wealth management units in shake up of $4.3trn industry

Beijing has given two of China's biggest banks the go-ahead to set up wealth management units, with at least 22 commercial banks in the country, including the state-owned Big 4, planning to launch independent wealth management subsidiaries.

The Bank of China and China Construction Bank have received their approvals from the China Banking and Insurance Regulatory Commission (CBIRC), the regulator said in a statement. China issued rules on Dec. 2 for commercial banks' wealth management subsidiaries to strengthen their risk management and support the real economy.

Under the new rules, the asset management subsidiaries of commercial banks are allowed to raise public stock funds, as well as invest up to 35% of their assets under management in non-standard credit assets.

The wealth management subsidiaries will be required to set aside a risk reserve fund to cover potential losses, according to the rules. They will also be required to have registered capital of no less than 1bn yuan.

On the mainland, banks - except for their private banking units - were barred from directly managing assets for their clients before the rules took effect.

The Bank of China announced in November that it would invest 10bn yuan ($1.5bn) in its independent wealth management subsidiary, which prompted the other three state-owned banks to announce the setting up of their own units. The Industrial and Commercial Bank of China (ICBC) said it would invest up to 16bn yuan, while the Agricultural Bank of China (ABC) and China Construction Bank (CCB) said it would put up 12bn yuan and 15bn yuan respectively, specialised news outlet reports.

More banks are expected to follow with the set up of their own wealth management units. According to local media reports in mainland China, more than 20 banks have plans to set up such units.

The rules are part of a new regulatory framework that cover the whole asset management industry. While these rules aim separate the wealth management business of banks from their other activities, which would prevent financial catastrophe if the investments sour, this move could also help stimulate China's stock markets, which have been in a slump.

According to Chinese financial news service Caixin Global, the outstanding amount of bank wealth management products was almost 30trn yuan at the end of 2017, and the crackdown on financial leverage and shadow banking slowed the growth of such products to 1.69%, compared to growth rates of up to 50% in recent years.