Banks wealth management products rules

Chinese banks must assess investors' financial strength and ability to withstand possible losses when they promote wealth management products, the China Banking Regulatory Commission said

Banks must remind customers of potential risks and must make information disclosure before selling such products, it said.

Banks must ensure they are promoting "suitable" products to customers to protect their "legal interests", according to the draft rules, which are open to public comment before taking effect on Jan 1, 2012.

"The fast development of wealth management businesses has helped to diversify investment tools for financial consumers and boosted residents' incomes," the regulator said.

But the rapid growth has also exposed some problems, with some banks found misleading customers when they sell such products, it said.

China's booming wealth management sector has in the last year grown into a way for banks to beat Beijing's lending restrictions, a focal point of China's monetary policy.

Sources told Reuters on Tuesday the regulators had censured some banks for trying to lure deposits by selling high-yielding wealth management products, and ordered them to put such sales on their balance sheets.

By selling wealth management products that offer investors annual returns of up to 7.5-8 percent more than double the one-year bank deposit rate of 3.25 percent banks want to attract more deposits to support loan growth.

Chinese banks are barred from lending more than 75 percent of the amount they hold in deposits, so to lend more they need to increase their deposits.

The government, keen to cool inflation that quickened to a 34-month high of 5.5 percent in May, have taken a spate of tightening measures in recent months to slow bank lending.

To protect banks' net interest margins, Beijing sets a ceiling on deposit rates and a floor on lending rates that banks can exceed by up to four times.

Copyright Reuters, 2011