WMPs get dose of post-Spring Festival reality

Yields on banks' specialist offerings decline on ample liquidity; sales may fall

After a moderate pickup before Spring Festival or Chinese New Year's Day (which fell on Feb 5 this year), yields on Chinese banks' wealth management products or WMPs declined soon after the weeklong holiday. The downtrend is expected to last through the rest of the year, experts said.

Data from financial information provider Rong360 Inc showed the expected average annual rate of return on banks' WMPs could be 4.38 percent for the Feb 8-14 period, the first business week after Spring Festival. If data confirms the forecast, it would mark a marginal week-on-week decline of 0.01 percentage point.

Liu Yinping, an analyst with Rong360, said banks usually offer WMPs with higher yields before Spring Festival to attract more consumers.

As cash flows back into the banking system after the holiday, liquidity in the open market tends to be relatively abundant. So, the decline in yields of WMPs will not reverse in the short term, he said.

Wei Jiyao, a researcher with PY Standard, a provider of financial planning services, said WMPs with a higher rate of return were offered before the holiday started, to seize a sizable part of the market in advance. Now, however, banks will offer fewer such products; and consumers will likely buy a limited number of them.

"Given that the yields on wealth management products will continue to drop, consumers should give top priority to products with longer maturity," he said.

PY Standard data showed the average rate of return on WMPs that cannot be redeemed ahead of the due date was 4.31 percent in January, down 0.05 percentage point from a month earlier, marking such a decline for the 11th month in a row.

Tu Min, a researcher with PY Standard, said the expected continual drop in WMP yields would be partly due to the fact that banks cannot invest in new non-standard assets, as per the new central regulations introduced last year.

"As a result, banks have to invest in assets that promise higher liquidity but (generate) less profit. The yield on wealth management products has dropped accordingly," she said.

"The new asset management regulations have set a new limit on capital pool, and commercial banks cannot make adjustments to the return on wealth management products. Given that the market is still short of enough impetus, the profitability of wealth management products will be limited."

In April 2018, the People's Bank of China and three other financial regulators issued the guidance on the asset management business of financial institutions to address problems like regulatory arbitrage, multi-level nesting of WMPs, rigid payments, and circumvention of financial regulations.

Five months later, the China Banking and Insurance Regulatory Commission announced further rules for WMPs issued by commercial banks.

The rules lowered the threshold for public funds, underlined rational publicity and tightened the game for investors interested in the private equity fund products offered by banks.

Experts from Rong360 said there is little possibility that the yield on banks' WMPs will rise to 4.9 percent.

But, as the current long-term deposit rate can rise to as high as 4 percent, the rate of return on WMPs is unlikely to drop below 4 percent.