According to CASS Finance Institute statistics, commercial banks issued significantly more wealth management products last year compared to 2007. The average expected yield of the 4456 products issued by 56 banks is 4.08%, among which the 2773 products that expired in 2008 generated an average yield of 4.52%.
Yin Jiangfeng, deputy director of CEIBS Lujiazui International Finance Research Center, attributed the better-than-expected performance to the "flexibility and prudence" of these products. He elaborated, "For instance, in order to hedge mounting market risks, terms such as ‘protection of interest�and ‘stop loss�were inserted into the structured products."
The report revealed that 90+% of the wealth management products are vanilla, a significant majority of which were issued by domestic banks, and that structured products accounted for less than 10%, most issued by foreign banks.
Mr. Yin says the high weight of low-risk, low-return products, with underlying assets such as credit and bonds, helped commercial banks�overall wealth management sector achieve attractive returns.
At the 2009 China Fortune Forum on the report’s first release to the public, Wang Xinxin, director of policy studies for the Shanghai branch of the People's Bank of China (PBoC), said "the time for Chinese to change their savings culture to growing personal wealth by investment has come," taking into account the surge of household wealth, fast development of financial markets, and extensive reform of financial institutions in China since the turn of new millennium.
He added that wealth management could increase the income of the middle class which would thus spend more, helping to achieve the goal of transforming an ailing export-driven economic model to one more reliant on domestic consumption.
However, at present investors have few investment choices except for equities and real estate. Though 2008 wealth management product figures paint a rosy picture, challenges remain.
The CASS report shows that the number of structured product launches declined in the fourth quarter when the global financial crisis broke out and the overseas derivatives markets collapsed. Some months saw none at all.
The diminishing origination of structured products was due mainly to regulators�tightened monitoring over the issuance of high risk products by domestic banks, and the risk aversion of both issuers and investors when equities and commodities markets went bearish.
Mr. Yin said that domestic banks�product design still has a lot of room for improvement, and China’s derivatives market still lags behind its peers overseas. He added that interest rates are still not determined by the market and cause problems for the launch of structured products.
Moreover, since PBoC cut the benchmark interest rate in mid-September, commercial banks have become less motivated to issue products backed by credit assets, and issue of such products also declined in the fourth quarter.
(Leanne Wang is a journalist based in Shanghai, email: Leanne_wang_hk@yahoo.com)
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