Lenders bet big on wealth management units

Currently, the total volume of BOC's wealth management products is about 1.2 trillion yuan, among which the volume of net-asset-value WMPs is nearly 200 billion yuan. Net-asset-value WMPs refer to non-principal protected WMPs with floating interest rates - similar to open-end funds that are bought and sold on demand at their net asset value.

Regulators require financial institutions to break implicit guarantees for principal and interest payments on wealth management products, leading to a gradual transition of such products toward net-asset-value WMPs to reflect risks on a timely basis. "People in general are glad to buy wealth management products that have an expected return of 4 or 5 percent so as to feel less stressed about their investment. But banks take the pressure for this kind of WMPs, so regulators want banks to reduce the volume of such products," said the manager at BOC Wealth Management.

"Under the current regulations, the requirements on risk management for newly issued WMPs are higher than before. To attract more investors, we must manage the products smoothly so that they will generate better returns while the investors are taking risks to some extent," he said.

Promoting a transition of products, ABC Wealth Management launched four main types of wealth management products on Thursday, ranging from cash management, fixed income, equity to hybrid products.

It also launched two featured products. One is specialized in agribusiness-related investments to satisfy farmers' demands in wealth management and support rural vitalization. The other is focused on investments in green bonds, green asset-backed securities, and credit assets of companies that perform well in regard of environmental protection, social responsibility and corporate governance.

In general, the first batch of WMPs launched by banks' wealth management subsidiaries include enhanced fixed income products, hybrid capital market investment solutions, and characterized private equities, covering the areas of composite investments across multiple markets, said Yang Yu, Cai Mengyuan and Fan Wenjing, analysts at Hwabao Securities Co Ltd, in another report.

"Compared with traditional WMPs, the new products are characterized by diversified investment strategies, equity allocation growth, extended maturity, the upgrading of risk levels, and the lowering of investment thresholds. These features reflect an important direction for the transition of banks' wealth management products in a new era of asset management," the analysts said.

Currently, quasi money market funds account for over 60 percent of BOC's net-asset-value WMPs. That percentage is similar to its peers in the banking industry. But there is more to do for BOC Wealth Management in terms of the investment in equities of non-listed companies, equity products, and debt capital markets, with the aim of better serving the real economy, which refers to the part of the economy that produces goods and services, said the manager with BOC Wealth Management.

Like the other four large State-owned commercial banks, BOC will still keep its asset management department after the establishment of a wealth management subsidiary because over 80 percent of the bank's existing WMPs were issued in the name of its head office.

The asset management department of BOC Head Office will entrust the operations of the bank's WMPs to the newly formed subsidiary. The head office will gain excess returns and take investment risks for the existing WMPs, while the subsidiary will charge asset management fees.

Unlike BOC, the Industrial and Commercial Bank of China Ltd and China Construction Bank Corp will keep the operations of their existing WMPs at the head office.

Encouraged by regulators, the wealth management subsidiaries of commercial banks will establish a market-oriented performance evaluation mechanism, which will give stronger incentives and higher pressure to their employees than the parent companies.