China Financial Deleveraging Causes WMP Shrinkage In H1

     BEIJING (MNI) - China's financial deleveraging campaign caused a shrinkage

of wealth management products (WMPs) in the first half of 2017 compared with the

end of last year, with the scale of interbank WMPs contracting sharply,

according to a report by the Banking Wealth Management Product Registration and

Depository Center.

     The value of outstanding WMPs amounted to CNY28.38 trillion as of the end

of June, CNY670 billion lower than at the end of 2016. The total 8% higher than

the end of June last year, however. 

     Outstanding interbank WMPs totaled CNY4.61 trillion as of the end of June,

around CNY2 trillion less than the beginning of the year. June was the fifth

straight month that the value of outstanding interbank WMPs had declined.  

     "The contraction of interbank WMPs was caused by the financial deleveraging

campaign," Jiang Chao and Jiang Peishan, analysts from Haitong Securities, said

in a report on Monday. "On the one hand, the China Banking Regulatory Commission

has prohibited the idle cycling of money in the banking system; on the other

hand, the tightening of monetary policy forced the interbank chain to contract,

causing the scale of interbank WMPs to fall."

     The CBRC published a report this month saying that the outstanding value of

WMPs grew 6.5% y/y in August, 27 percentage points less than the growth rate of

the same period last year.

     "According to the CBRC's report, we estimate that [the value of]

outstanding interbank WMPs fell to around CNY3.8 trillion in August, accounting

for 12.6% of total wealth management products," Jiang and Jiang said.

     Personal investors are still the largest buyer of WMPs. As of June,

outstanding WMPs sold to personal investors totaled CNY13.14 trillion,

accounting for 46.3% of the total amount of WMPs, compared with CNY13.46

trillion and 46.33% as of the end of 2016.

     The biggest target of investment for WMPs is bonds. As of June, WMPs bought

CNY12.1 trillion of bonds, accounting for 42.51% of the total amount of WMPs,

down from CNY12.7 trillion and 43.76% last December. The purchase of

government-backed bonds, including China government bonds and policy banks

bonds, and corporate bonds, took 7.71% and 34.80% of total WMP money, compared

with 8.69% and 35.07%, respectively, last December.

     "Other" types of assets, including funds and equity assets, totaled CNY4.2

trillion in June, increasing sharply from CNY2.7 trillion last December, and

accounting for 15% of the total assets. According to estimates by Industrial

Research, a research consultancy run by Industrial Bank, equity assets comprised

around 9% of total assets.

     "The stock market has performed pretty well in 2017, especially big

companies that banks like to invest in, so this has encouraged more WMPs to

invest in the stock market," Kong Xiang and Lyu Shuang, analysts at Industrial

Research, said in a report on Monday. "It is a good effort for banks to make

some profits by investing more in the stock market in the first half of the

year."

     Banks' investments in the stock market have also been partly pushed by

higher costs of WMPs. The report said that closed-end WMP yields have gone up to

4.0% from around 3.5%.

     "In order to alleviate the pressure from rising costs of WMPs, banks will

pay more attention to buying assets with higher returns," Kong and Lyu said.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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