Survey on the pressure of small and medium-sized banks to reduce their own wealth management: they are eager to find licenses and transfer to consignment sales

"I received a verbal notice, which has little impact on banks with small wealth management business, because the policy called for a gradual reduction a few years ago. However, banks like us, which are hopeful of applying to set up wealth management subsidiaries, are in an awkward position. When talking about the impact of regulatory requirements to reduce the scale of stock wealth management business, the person in charge of the wealth management business of a city commercial bank in central China said.

A reporter from the China Securities Journal recently learned from the industry that a number of banks in Shandong, Chongqing, Hunan and other provinces that have not set up wealth management subsidiaries have received notices issued by regulators, requiring them to reduce the scale of their existing wealth management business by the end of 2026. Compared with the previous regulatory guidance on the scale of pressure reduction financial management, the time node has been clarified this time.

Industry insiders said that for banks with small wealth management scales, it is often difficult for wealth management business to achieve breakeven and effective risk isolation, so it is a reasonable choice to withdraw from proprietary wealth management, and consignment sales may become the only way for their wealth management business to grow. For those banks with a wealth management scale of more than 50 billion yuan, obtaining a wealth management subsidiary license has become a top priority.

Small and medium-sized banks

The situation of small and medium-sized banks that have not established wealth management subsidiaries is quite different, and it is not appropriate to generalize.

"Some small banks have a small wealth management business and are gradually withdrawing from it. There are also some banks with large wealth management scale, which have relatively complete asset management facilities and talent reserves, making it unrealistic for these institutions to withdraw their wealth management business. A person from a city commercial bank in the northern region told reporters.

"The wealth management business has high requirements for professionals and special requirements for risk management, which may be lacking in small banks. Moreover, because the wealth management business relies on fees to obtain income, it needs to reach a certain scale before it can achieve breakeven, and many small banks lack such scale advantages. In addition, without a wealth management subsidiary license, it is easy to have the problem of unprofessional and non-independent management, and financial market risks may be transmitted to banks through wealth management products. Zeng Gang, director of the Shanghai Financial Development Laboratory, said.

At present, some banks that are expected to apply for the establishment of wealth management subsidiaries are in an awkward position, and they are anxiously seeking wealth management licenses. "Two years ago, we were applying for a wealth management subsidiary license, but we have not approved it, and we don't know the specific reasons." A person from a city commercial bank in the central region told reporters.

A person from a city commercial bank in the western region said: "We hope that the department can take the lead in mapping and classifying the institutions that carry out wealth management business in the current market, and unify the regulatory standards and policies." Accelerate the liquidation of problematic wealth management business, and support banks that meet the conditions to declare and prepare wealth management companies. In his view, in terms of the regulatory requirements for the declaration of wealth management companies and the stock business, it is still necessary to unify the regulatory standards and policies of various places, and clarify and enhance the policy orientation and expectations.

The scale of business has only decreased, not increased

According to incomplete statistics from the China Securities Journal, as of the end of 2023, there are 230 urban commercial banks and rural financial institutions with existing wealth management products, of which about 20 banks have a scale of more than 50 billion yuan, Shanghai Rural Commercial Bank ranks first with 181.9 billion yuan, and Chengdu Rural Commercial Bank, Bank of Chengdu, and Zhongyuan Bank have a wealth management scale of more than 70 billion yuan.

Many small and medium-sized banks are queuing up for the "admission ticket" of bank wealth management companies. Since 2018, Shanghai Rural Commercial Bank, Bank of Jilin, Bank of Guiyang, Bank of Chongqing, Bank of Changsha, etc. have all indicated that they will apply for the establishment of bank wealth management companies. In addition, in January 2022, the General Office of the Henan Provincial People's Government issued an announcement stating that it would promote local financial institutions such as Zhongyuan Bank and Bank of Zhengzhou to initiate the establishment of bank wealth management companies.

"'Stability' is the biggest feature, the product is stable, and the scale is also stable." This is the biggest feeling of a person from a city commercial bank since the regulator first proposed to reduce the wealth management business of small and medium-sized banks at the end of 2021. "We will reduce the pressure on the wealth management business every month, such as controlling the scale of new products. At the same time, in order to meet the needs of customers, we will open products every day, and we also sell other products to ensure the diversity of customers' investment choices. ”

A number of people from urban commercial banks said that since the issuance of the guidance on the gradual reduction of the scale of wealth management by banks that have not established wealth management companies, the scale of their wealth management has only decreased but not increased. "Our current scale has dropped by tens of billions of yuan compared with 2021." A person from a city commercial bank in North China said. In the view of industry insiders, the gradual reduction or even liquidation of bank wealth management business without wealth management subsidiaries is mainly due to the consideration of risk isolation and professional management.

The core purpose of gradually separating the wealth management business from the bank and establishing an independent bank wealth management company is to ensure the safe and stable operation of the banking business. "The establishment of a separate bank wealth management company is for risk isolation. In general, if the wealth management products issued by the bank have losses or even explosions, it may affect the bank's credit. After the establishment of a separate wealth management subsidiary, this part of the risk will be stripped out, and the bank will only bear the responsibility of consignment sales. A person from a joint-stock bank wealth management company said.

"Deposits and loans are the traditional business of commercial banks, which belong to the on-balance sheet business, and the bank mainly bears credit risk, so credit risk management and control is the core competence of the bank, and credit assets are non-standard assets, while wealth management is the asset management business, which belongs to the off-balance sheet business, and the investment side is concentrated in standardized product investment. The core competencies required by banks' traditional deposit and loan business and wealth management business are not consistent. In Zeng Gang's view, in order to ensure that the wealth management business can operate according to the essence of its asset management business and avoid alienation into the shadow banking form of quasi-credit presented in the early days of the bank, it is extremely important to establish a separate bank wealth management company.

Reshape the wealth management market structure

When talking about the topic of reducing the scale of wealth management by banks that have not established wealth management subsidiaries, a number of industry insiders told reporters that it will have a certain impact on the intermediate business income of relevant small and medium-sized banks, but the extent is limited. "Most of the bank's wealth management fees account for less than 3% of the revenue of such small and medium-sized banks." Dai Zhifeng, director of Zhongtai Securities Research Institute, said.

Industry insiders believe that after the stock wealth management scale of small and medium-sized banks drops, it will start the transformation from wealth management self-operation to wealth management agency sales. Since the number and amount of wealth management products issued by such small and medium-sized banks are not large, and the rectification timeline is relatively long, the follow-up impact is relatively small.

"Some small and medium-sized banks issue wealth management products, in fact, to serve the system, to finance the group's supply chain enterprises, and to interact with the upstream enterprises in the supply chain. If this part of the business is cut, the corresponding personnel may be merged into the financial market department and converted to on-balance sheet business. A person from a joint-stock bank wealth management company said.

A number of industry insiders said that the scale of the wealth management business of relevant small and medium-sized banks accounts for a relatively small proportion of the industry. "In the stock wealth management business, the scale of wealth management subsidiaries has accounted for more than 80%, and the stock wealth management scale of small urban commercial banks and rural commercial banks may be converted to consignment sales of large bank products after the reduction of the stock wealth management business, which will have little impact on the overall wealth management business." Ming Ming, chief economist of CITIC Securities, said.

According to the Annual Report on China's Banking Wealth Management Market (2023) released by the Banking Wealth Management Registration and Custody Center, as of the end of 2023, the scale of the bank wealth management market was 26.80 trillion yuan. Among them, the scale of wealth management companies is 22.47 trillion yuan, accounting for more than 80% of the total market size; The scale of urban commercial banks is about 2.2 trillion yuan, accounting for 8.15% of the total market size; The scale of rural financial institutions was 986.5 billion yuan, accounting for only 3.68% of the total market size.

The pressure drop of self-operated wealth management of "childless" small and medium-sized banks is good for bank wealth management companies, which is highlighted by many industry insiders in the interview. In Dai Zhifeng's view, the scale of wealth management will be further concentrated in bank wealth management companies. A person from a city commercial bank wealth management company also told reporters: "After these small and medium-sized banks turn to wealth management distribution, it is good for bank wealth management companies and public funds. The most beneficiary is definitely the bank wealth management company, because their customer base has the same risk appetite. ”

Create a "consignment supermarket"

Industry insiders generally expect that the trend of pressure drop wealth management business will promote small and medium-sized banks to seek development in two major directions: one is to deepen the source business, and the other is to actively expand the agency business.

"For small banks, the scale of wealth management business is in line with the strict access standards and regulatory requirements for small and medium-sized financial institutions proposed by the Central Financial Work Conference. In the future, small banks should focus more on the business of credit origin based on local differentiated development, so as to achieve further sinking of customers. Zeng Gang said.

Under the trend of narrowing interest margins, wealth management business provides small and medium-sized banks with a certain amount of non-interest income. However, in Zeng Gang's view, the main purpose of some small and medium-sized banks to carry out wealth management business is not to make money, but to meet the all-round and diversified needs of customers and enhance customer stickiness.

"Many banks tailor their wealth management products to the needs of their customers. If the business is liquidated, those banks that have not yet set up wealth management subsidiaries will have to do consignment sales, which will undoubtedly limit their ability to tailor products for customers, thereby weakening their competitiveness in the market. Zeng Gang said.

For these small and medium-sized banks, consignment sales may become a new way for business growth in the future. "The loss of wealth management will make it more difficult for small and medium-sized banks to expand their business, so that they can only rely on marketing methods such as consignment sales and traditional deposit business to maintain and expand valuable customers. In order to maintain the existing wealth management customers, small and medium-sized banks will further focus on the agency business, so as to make up for the loss of their own wealth management business. Ren Tao, a distinguished senior researcher at the Shanghai Finance and Development Laboratory, told reporters.

Zheng Zhehan, a researcher at Puyi Standard, said that in the new era of consignment business development, institutions are facing two major challenges: "product selection ability" and "risk monitoring". The challenge of "product selection ability" is how to choose financial products with lower risk, better performance and better prospects. The challenge of "risk monitoring" is how to monitor and control the risks of net breakage and drawdown of wealth management products sold on behalf of others.

In Zheng Zhehan's view, small and medium-sized banks need to formulate product selection plans suitable for the region according to the customer characteristics, investment needs, and risk appetite in the service area, and also have a reasonable and sound evaluation system and evaluation model for wealth management products, so as to select the most suitable wealth management products based on factors such as historical product performance, asset allocation, and investment strategy.

In terms of risk monitoring, it is necessary for the agency to achieve timely and effective risk assessment and early warning for wealth management products. Good risk early warning and timely risk avoidance can effectively help the agency reduce losses for customers, avoid possible customer loss and strengthen customer stickiness, so it is necessary to establish a scientific and effective risk early warning system to achieve timely monitoring and early warning of interest rate risk, credit risk, strategic risk, market risk, etc.

"Small and medium-sized banks should seize the time window for the sale of wealth management products that are not yet open to third-party distribution agencies (Internet platforms, etc.), build and improve the distribution system, train professional product managers and financial consultants, vigorously develop wealth management products and other financial product distribution business, and build themselves into a 'financial product supermarket', and strive to seize the opportunity of the wealth management market." Dong Ximiao, chief researcher of Zhaolian, said.