德银-中国资管新政解读：重塑中国的影子银行-中国-银行业-20171120_23页_1mb

Summary of Asset Management Guideline - Reshaping China's Shadow Banking

Core Content

The document discusses the release of the Guideline on Asset Management Businesses by Chinese regulators, including the People's Bank of China (PBOC), CBRC, CIRC, CSRC, and SAFE, in late 2017. This guideline aims to standardize the asset management sector, reduce shadow banking risks, and enhance financial system transparency.

Main Points

• Regulatory Objective: To address financial risks, especially those related to shadow banking, by introducing stricter controls on leverage, duration mismatch, SPV layers, and implicit guarantees.
• Scope of the Sector: The asset management industry in China is a key component of shadow banking, with total assets under management (AUM) reaching Rmb102 trillion as of end-2016, equivalent to 137% of GDP.
• Growth and Risks: The sector has grown at a 50% CAGR since 2011, significantly outpacing system loan growth. Key risks include liquidity risks, contagion risks, under-capitalization, and implicit guarantees.
• Regulatory Measures: The new guideline standardizes product classification, caps leverage (140% for open-end public funds, 200% for close-end public funds and private funds), limits SPV layers, restricts investment in non-standard credit assets, and removes implicit guarantees by requiring NAV-based management.
• Impact on Financial System: The regulation is expected to slow shadow banking growth, reduce financial leverage, and increase transparency, but with a grace period until June 2019, near-term liquidity impact is limited.

Key Implications

For the Entire Financial System

• Credit Growth Moderation: Expected to slow system leverage and reduce the shadow banking balance.
• Improved Transparency: Enhanced reporting and supervision will help reduce regulatory arbitrage.
• Lower Risk-Free Rate: The removal of implicit guarantees may bring down the actual risk-free rate.
• Funding Cost Adjustments: Better-quality borrowers may benefit from lower funding costs, while weaker ones face higher costs.

For Individual Banks

• Big Banks: Likely to benefit from stable deposit growth, better loan demand, and less regulatory pressure.
• Small Banks: Face higher capital and earnings risks, especially due to higher shadow banking exposure and funding pressure from reduced WMP yields.
• WMP Yield: Expected to decline, affecting deposit growth and funding strategies for smaller banks.

Key Risks Addressed

Market Outlook

• Short-term: The regulation is largely expected, with a 19-month grace period. No major liquidity impact is anticipated.
• Long-term: Positive for financial stability and transparency, but may slow credit growth and reduce shadow banking.
• Stock Picks: Deutsche Bank recommends buy for Bank of China (3988.HK), Agricultural Bank of China (1288.HK), China Construction Bank (0939.HK), and Bank of Beijing (601169.SS). It recommends hold for China Merchants Bank (3968.HK), Ping An Bank (000001.SZ), and Shanghai Pudong Bank (600000.SS), and sell for CEB (6818.HK), Huishang Bank (3698.HK), Chongqing Rural Bank (3618.HK), Industrial Bank (601166.SS), and Bank of Nanjing (601009.SS).

Conclusion

The asset management guideline represents a major regulatory overhaul in China aimed at curbing shadow banking risks. While it may have limited short-term impact, it is expected to bring long-term benefits by improving transparency and financial stability. The regulation will favor larger banks over smaller ones, due to the latter's higher exposure to shadow banking and greater compliance challenges.