Tuesday, October 6, 2015   

Defaults cloud 20 trillion yuan wealth industry

Natallie Cai

Friday, December 21, 2012


A total of 30,000 wealth management products involving 20 trillion yuan (HK$24.87 trillion) have been sold through mainland banks, the Chinese Academy of Social Sciences estimated.

Concerns have been raised on such products in the mainland financial industry after Huaxia Bank admitted two weeks ago defaulting on 160 million yuan worth of them.

A total of 23,858 wealth management products were issued by banks in the first three quarters, outpacing the 20,270 launched last year, worth at least 16 trillion yuan, the academy - a think tank of the central government - wrote yesterday in a bluebook on domestic financial development.

The China Banking Regulatory Commission therefore asked the China Trustee Association to collect personal information of trust buyers, the Shanghai-based Oriental Morning Post reported yesterday, citing sources. The watchdog will collect the name, address, contact and investment amount of each of the trust buyers in a bid to get a big picture of the potential risks.

The move comes after the CBRC asked domestic banks and financial institutions to submit report in two weeks after checking the sales of third-party financial products - particularly trust, insurance and investment fund products, to ward off risks.

The risk could be immense should a large-scale default occur, as the products are sold in a way similar to group purchases. Usually, the investment of trust products is initiated by one investor, who will later invite his relatives and friends to pool money into his trust account for proposed returns, the newspaper said.

But only the initiator is a client of the trust company, with the interest of others unsecured.

Sanford Bernstein senior analyst Mike Werner believes that banks will not be forced to stop selling the products, unless the possible defaults threaten social stability.

If lenders are requested to do so, medium-sized bankswould face the most negative impact.

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