Sources tell Bloomberg that the China Banking Regulatory Commission earlier this month instructed “banks, including some big lenders,” to “lower the rates they offer” on wealth management products (WMPs).
What’s up with WMPs?
- WMPs are an alternative to bank savings accounts that investors have flocked to over the past decade. They provide higher returns for both customers and banks, but are also riskier, particularly the 80 percent of them that are listed off the official balance sheets.
- The products, whose annualized average returns have reached a 17-month high of 4.66 percent, have become critical sources of revenue for Chinese banks amid intense pressure from the central government to reduce traditional lending and debt in the economy.
- However, WMPs have also been implicated in several scandals. In April, a Minsheng bank branch in Beijing was found to have cheated customers of 3 billion yuan ($436 million) in a fraudulent WMP scheme that collapsed.
- The latest pressures from the government, according to Bloomberg, are aimed at reducing the risk that banks will pass on the costs of high-yield WMPs to borrowers, “potentially threatening economic growth and stoking inflation.”
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