China undertakes rapid WMP market expansion
(25 March 2013 – China) In China, the total outstanding amount of bank-issued wealth management products (WMPs) grew dramatically – growing from RMB820 billion (A$126 billion) in 2008 to RMB7.1 trillion at the end of 2012.
According to a source, this was the equivalent to more than 7 percent of total system deposits, representing a four-year compound annual growth rate (CAGR) of 72 percent.
Wealth management products in China include investment products issued by banks or other financial institutions that repackage financial products, such as bonds, money market products, equities, trusts and are sold to retail and corporate customers.
The WMP issuer acts as the authorized fund manager of the money raised from sales of WMPs. Investment risks and returns that are shared between investors and issuers are stated in the product sales agreement or contract.
"The significant amount is now compared to the trust sector total assets under management (AUM) of RMB7.5 trillion at end-2012, and total asset of insurance companies of RMB7.4 trillion at end-2012."
The source believes the key drivers for rapid WMP market expansion include:
Growing demand from investors, as they look for low-risk investment products with yields that are higher than time deposit rates amid the low/negative real interest rate environment.
There will also be strong financing demand from property developers, small and medium-sized enterprises (SMEs) and local government financing vehicles (LGFVs).
Intensifying deposit competition and funding needs for banks’ off-balance sheet lending under the tight loan quota and loan-to-deposit ratio requirement of 75 percent.
The source also said fee income earned on WM business will expand with more intention by banks to grow the business, in an effort to diversify their non-interest income revenue streams.
Wealth management products in China include investment products issued by banks or other financial institutions that repackage financial products, such as bonds, money market products, equities, trusts and are sold to retail and corporate customers.
The WMP issuer acts as the authorized fund manager of the money raised from sales of WMPs. Investment risks and returns that are shared between investors and issuers are stated in the product sales agreement or contract.
"The significant amount is now compared to the trust sector total assets under management (AUM) of RMB7.5 trillion at end-2012, and total asset of insurance companies of RMB7.4 trillion at end-2012."
The source believes the key drivers for rapid WMP market expansion include:
Growing demand from investors, as they look for low-risk investment products with yields that are higher than time deposit rates amid the low/negative real interest rate environment.
There will also be strong financing demand from property developers, small and medium-sized enterprises (SMEs) and local government financing vehicles (LGFVs).
Intensifying deposit competition and funding needs for banks’ off-balance sheet lending under the tight loan quota and loan-to-deposit ratio requirement of 75 percent.
The source also said fee income earned on WM business will expand with more intention by banks to grow the business, in an effort to diversify their non-interest income revenue streams.