PBOC Said to Test Extra Monitoring of Wealth-Management Products

China’s central bank is conducting a trial monitoring of banks’ off-balance-sheet wealth-management products under its macro-prudential assessment system, according to people familiar with the matter.

The WMPs will be included in calculating broad-based credit, the people said, asking not to be identified discussing non-public information. Currently, the products aren’t included in the assessment framework, and it’s not clear when or if the People’s Bank of China will add them, the people said.

Citigroup Inc. estimated that 13 trillion yuan ($1.9 trillion) of the products, which are a key building block in China’s shadow-banking system, could be covered.

Extra scrutiny could cool growth in the products as China tries to rein in financial risks that could tank the economy. Adding the products to the central bank’s calculations could help to emphasize requirements for lenders to limit dangers and maintain sufficient capital.

A change would mean regulators would be may be better able to “control the pace of broad-based credit supply," Judy Zhang, a Hong Kong-based analyst at Citigroup, said in a note. WMP issuance and yields may shrink as lenders pass on extra costs to investors, she said.

Loans, Bonds

The central bank’s macro-prudential system already encompasses banks’ loans, bond and equity investments, repurchase agreements and placements with other financial institutions when calculating lenders’ overall levels of credit. The central bank didn’t immediately reply to a fax seeking comment.

The system assesses individual banks’ risks, looking at factors such as capital adequacy, broad-based credit growth, leverage and asset quality.

Chinese households, companies and banks held a record 26.3 trillion yuan of wealth-management products as of June 30 and the China Banking Regulatory Commission has been tightening rules on WMPs since late 2014. Most of the products are non-principal guaranteed, which means they reside off banks’ balance sheets.

The 21st Century Business Herald earlier reported on adding the WMPs to the assessments.

— With assistance by Jun Luo, Steven Yang, and Yinan Zhao

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