China curbs wealth management products to lower growing risks: BBVA

Mid-size banks will be hardest hit profit-wise.

According to BBVA, media outlets began reporting over the weekend that the China Banking Regulatory Commission (CBRC) has introduced new measures to rein in banks’ issuance of wealth management products (WMPs), which have fueled the growth of lending in the nonbank financial sector. The CBRC is reported to have imposed limits on WMPs used to fund trust loans, bank acceptances, and entrust loans. For WMPs beyond the established limits (4% of total assets and 35% of total WMPs), banks are instructed to move them back onto their balance sheets by end-2013.

"If implemented as reported, these measures would severely inhibit the expansion of banks’ off-balance-sheets activities, especially mid-size banks. As such, they would help alleviate the build-up of risks in the shadow bank market, which have increased recently. However, the equity market fell sharply on the news due to the adverse effect the measures would have on financial sector profits," noted BBVA.