Recently, China Banking Regulatory Commission (CBRC) issued the “Circular on Issues Related to the Regulation of Commercial Banks' Investment in and Operation of Wealth Management”. The act aroused great worries in the market for a while, and the stock prices of relevant listed banks also went down. For this purpose, the reporter of Securities Times made an exclusive interview with Tang Bin, director and board secretary of Industrial Bank (IB).
Reporter: How do you understand the background and purpose for the issuance of “Document No.8”?
Tang Bin: Wealth management products witnessed fast development in recent years, and last year, some banks also encountered disputes over wealth management. For this reason, in order to prevent undesired issues from happening, CBRC established some regulations on non-standard wealth management products in “Document No.8”, so as to tamp the foundation for the long-run development of wealth management business.
In particular, by guiding the wealth management and investment of banks to develop toward the direction of standardization, regulating operation and management, and intensifying information disclosure, “Document No.8” can, on the one hand, effectively reduce the probability of default (PD) by wealth management products in basic assets and fundamentally protect the interests of banks' customers; on the other hand, drive real bearing of wealth management risks by customers and the true transfer of wealth management risks so as to avoid the “rigid cashing” by banks. It is beneficial for the sustainable and healthy development of banks' wealth management businesses in the long run.
Reporter: For the concept of “non-standard debt asset” mentioned in the document, how should we understand it?
Tang Bin: The concept of “non-standard debt asset” further specifies the scope that banks can engage in non-standard asset-related businesses, covering the major types of non-standard businesses engaged in by banks in recent years. It is equivalent to giving proper status to various non-standard businesses that banks have engaged in the past.
In these years, the wealth management businesses of banks witnessed fast development, but as the basic assets of off-sheet wealth management, many non-standard products did not gain a proper status all the time. As is proved by practice, the business of wealth management comes into being upon the demand of wealth management, and it is a product of market-oriented interest rate. This time, “Document No.8” indicates the recognition of the regulatory authorities to the practice of banks in creating wealth management products, approving them in the form of regulatory document. In other words, such non-standard businesses may see further development on the basis of regulation.
Reporter: Based on your analysis over the regulatory document, could you share with us some new ideas for the business of wealth management in “Document No.8” ?
Tang Bin: There are indeed some new ideas in “Document No.8”.
For instance, credit asset is listed as a “non-standard debt” for the first time, and this is the first time that credit is allowed into the wealth management asset after Document No. 102 issued in 2010. This adjustment is of great significance to banks.
For another example, the document specifies that commercial banks may act as an agency to sell the products issued by other entities for investment in non-standard debt assets or equity assets, and this will also bring new business opportunities to banks with advantageous channels. We hope to grasp the opportunity by intensifying the construction of channels like “bank-bank platform”.
Reporter: “Document No.8” puts forward “three independencies” in product management and risk control requirements. Does IB meet all these requirements?
Tang Bin: Now, the wealth management products issued by IB can all achieve independent management and independent account establishment, and each wealth management product has specific corresponding basic assets on an one to one basis. Next, we will accomplish the independent accounting for each product to meet the regulatory requirements.
IB implements complete and rigorous prior, in-process and post all-course risk management. The basic assets of wealth management involving corporate credit are covered into unified credit extension management, and meanwhile, IB unifies the admittance criteria for basic assets of the entire bank's wealth management products, with very strict requirements. In addition, we also enforce strict information disclosure system for wealth management products to ensure the transparency and accuracy of information disclosure.
Reporter: Investors care about the two red lines of “35%” and “4%”. Will they impair the development of wealth management?
Tang Bin: Many national joint-stock banks including IB have accelerated their market-oriented development in these years. With strong awareness of innovation, they witnessed substantial development in the business of wealth management. However, we should also realize that the wealth management products of banks come into being against the demands of residents for assets configuration under the background of market-oriented interest rates, rather than the games between institutions. The ultimate purpose is to meet the needs of terminal customers.
This can be compared to the formation of a road. Banks didn't have theses businesses in the past, but such a road occurs with the objective demands and business innovation. At the beginning, it may be a footpath, which develops into a boulevard with more and more people choose to walk on it. Then, however, traffic congestion may happen sometimes, with someone striving for going ahead, and even some people may drive vehicles on it while others walk on it.
“Document No. 8” can be compared to such measures to widen the road, reduce the gradient, separate pedestrian flow from vehicle flow, and set traffic lights, with a view to helping you to walk on it in a more efficient manner rather than keeping you from walking on it.
Across the whole industry, in 2012, the banking asset scale reached RMB 130 trillion and the wealth management scale of banks amounted to around RMB 8 trillion. If accounting for 35% of the total wealth management, the scale of non-standard debt assets of the entire banking wealth management sector may not exceed RMB 2.8 trillion; if accounting for 4% of the total assets, it may reach RMB 5.2 trillion. At present, the actual investment of banking wealth management in non-standard assets still fall far behind RMB 5.2 trillion. This means that there is also a big room for the scale of non-standard wealth management with the development of standard wealth management business.
Reporter: Then, how about the wealth management performance of IB?
Tang Bin: In terms of stock, let's take the third quarter report released as an example, the balance of IB wealth management products reached about RMB 420 billion, with the non-standard ones accounting for about half of the total. As for the non-standard part above the upper limit provided in “Document No.8”, we will achieve steady balance management as the basic assets have short duration and stable asset quality. In other words, “Document No.8” has basically no impact over the non-standard wealth management business and even the all-year performance of IB.
In terms of increment, it will have no influence on IB. The bank has formed inter-market service capacity itself and the whole group boasts integrated financial platform covering lease, trust and fund. We will extend and deepen our cooperation with exchanges and various non-banking financial institutions, further intensify the standardization of basic assets, push forward the asset securitization vigorously, and accelerate the transformation and upgrading of wealth management. We expect that the business of wealth management will continue keeping a desired development momentum in this year.
Reporter: Can we understand in this way that the strong grows stronger in the market of wealth management?
Tang Bin: Along with the steady and healthy growth of domestic economy, social wealth will keep growing at a fast rate, and the demands of residents and various institutions for various financial services including wealth management and assets management will sure increase quickly. All of these determine that the demands of financial services in the future must be diversified in multiple markets with a great variety of products. This means that those highly market-oriented banks with outstanding innovation capability and integrated financial service platform will make flexible adjustment in reply and it is hopeful for them to keep a leading position.
It is specified in “Document No.8” that banks should “keep exploring the models and areas where investment in and operation of wealth management are possible”. This indicates that the CBRC still hold an attitude of active encouragement to banks' innovation of wealth management products and normalized development. IB will surely bring into play its advantages of high market sensitiveness, innovative ability and fast response and implement the requirements of “Document No.8”. On that basis, it will push forward the transformation and further development of wealth management in a more sturdy manner.
(Source: www.stcn.com )