China orders banks to control wealth product risks

BEIJING Mon Jan 14, 2013 6:40am EST

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BEIJING Jan 14 (Reuters) - Chinese banks must control their wealth management businesses and reduce risk by not selling unauthorized products or misleading customers, the bank regulator said on Monday, a month after a publicized failure of one wealth product.

The China Banking Regulatory Commission said banks would also be barred from selling private equity funds, and that it would monitor investment channels of trust loans and other financial products to minimize risk.

"We will strictly control related risks from banks' off-balance-sheet operations and monitor the design, sales and investment of wealth management products," the regulator said in an online summary of 2013 work priorities.

China's fast-growing wealth management sector made a stir last month after one wealth product sold through Hua Xia Bank failed to pay its annualized return on the given date.

That prompted some analysts to worry about a crisis of confidence in the event of more and bigger defaults. China estimated the amount of outstanding wealth management products distributed through banks to be worth 6.7 trillion yuan at the end of September, or 7 percent of the country's 91.7 trillion yuan deposit base at the end of December.

The wealth industry has drawn concern in China because some of its products funnel money into more credit risky businesses such as property development that cannot get loans from banks.

The bank regulator also told banks to follow Beijing's orders to calm property prices by not lending to those with more than two homes. But at the same time, it told banks to stress-test property loans to reduce risk from any cooldown. ($1 = 6.2 yuan) (Reporting by Aileen Wang and Koh Gui Qing; Editing by Nick Macfie)

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