Chinese banks to find it costly to issue wealth management products this year

Regulators are tightening rules on WMPs.

Natixis expects less cushioning from fee income as banks will find it more difficult/costly to issue wealth management products (WMPs).

Chinese banks have expanded business in fee income in response to interest rate liberalization, which has resulted in lower rate and net interest margin.

The key factor of future profitability is regulation. PBoC will include assets behind WMPs in its Macro-Prudential Assessment (MPA) from 2017 Q1, while CBRC will tighten rules on WMPs such as requiring banks to set aside capital for provisioning.

This poses restrictions on banks in the ability to issue further. In particular, funds and securities firms have already overtaken banks as the larger drivers for the WMP issuance in S1 2016.