China Central Bank to Count Off-Balance Sheet WMPs in Assessing Banks' Risk

China's central bank will tighten supervision of shadow banking businesses by including off-balance sheet wealth management products ("WMPs") into its risk-assessment framework next year, sources with direct knowledge of the matter told Reuters.

The People's Bank of China ("PBOC") will include the WMPs in its Macro Prudential Assessment ("MPA") risk-tool starting in the first quarter of 2017, the sources said, potentially requiring banks to put aside more capital.

The PBOC also urged financial institutions to strengthen liquidity management and keep next year's lending growth at a "rational and appropriate" pace, the sources said.

Over the weekend, China's top leaders vowed at a key economic planning meeting to prevent asset bubbles in 2017 and place greater importance on the prevention of financial risk. The leaders also said it would keep monetary policy "prudent and neutral" in 2017. 

China's $3.5 trillion wealth management industry has been a source of risk, as off-balance sheet WMPs channel deposits into risky investments with little regulatory oversight, offsetting some of Beijing's efforts to reduce corporate leverage.

Starting in the first quarter of next year, off-balance sheet WMPs will be included in the MPA assessment framework, the sources said.

MPA currently includes checks on loans, bond and equity investments and deposits at non-financial institutions.

The central bank also urged "stable and orderly" growth in WMP business toward the year-end, the sources said.

Reuters reported in July that China's banking regulator was drafting new rules to tighten control over the sprawling WMP industry, as Beijing grows increasingly concerned about the potential risks of high leverage and worsening credit quality associated with such businesses. 

PBOC could not give immediate comment.


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