INVESTMENT BANKING | Staff Reporter, China

Chinese banks spin off asset management arms as oversight mounts

Bank of Communications is investing $1.25b for such unit in Shanghai.

A growing number of Chinese banks have been setting up independent asset management subsidiaries following intensified regulatory scrutiny on the $15t sector that previously allowed banks to escape oversight particularly on shadow banking products and off-balance sheet activities.

Establishing a stand-alone asset management unit would mean the subsidiary can carry out independent operations with no interference from the parent bank.

Bank of Communications was the latest to jump in on the burgeoning spinoff trend after the lender announced its plan to invest  $1.25b (8b yuan) to set up an asset management subsidiary in Shanghai.

The move comes on the heels of four other smaller lenders China Merchants Bank, Huaxia Bank, Bank of Beijing and Bank of Ningbo, who have similarly applied to spin off separate asset management units, according to the South China Morning Post.

Also read: China banks' assets plunge to single digits in 2017 as loans take over

“Banks’ wealth management business is set to transform under the New AM (asset management) regulations,” accounting firm PwC said in an earlier report, adding that the “principal-preserved” type of wealth management may not prevail in the future. 

As shadow banking business migrates unto the banks’ balance sheets, AUM held by the asset management industry may grow at a slower pace, Standard Chartered said in a note.

"The restrictions on channel businesses and capital-asset pooling will likely constrain growth of non-bank financial institutions. With investment in NSCAs subject to tighter regulation, demand for standard credit assets may increase," the bank forecasted.

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