Wu: Many Bk-Issued Wealth Mgmt Pdts Are De Facto Funds

407 words

9 June 2007

00:44

Dow Jones International News

English

(c) 2007 Dow Jones & Company, Inc.

SHANGHAI (Dow Jones)--A senior Chinese central bank official on Saturday urged commercial banks selling wealth management products to better inform investors of potential risks and to improve their disclosure of how client funds are operated.

Many of these products, which are fairly large in size and mainly invest in securities on the secondary markets, are in essence securities funds, but their information disclosure isn't as transparent as domestic rules require that of a public fund to be, said Wu Xiaoling, Vice Gov. of the People's Bank of China.

Speaking at an economic forum at the Shanghai National Accounting Institute, Wu also said, citing her own observations, that many ads commercial banks post to promote their wealth management products are so misleading that ordinary customers can hardly differentiate the products from bank deposits.

"This may result in unfair competition between financial institutions... and may undermine banks' reputations once the yield on the products misses the target in the ads," she said.

Chinese banks are widely believed to be backed by state credit, so bank-issued wealth management products often receive greater popularity than similar products issued by fund management companies and trust firms.

Wu said some bank-issued wealth management products even resemble private equities, which suit those with a large fortune who are willing to shoulder relatively high risks for better returns.

"While buying bank-issued wealth management products, many customers are not aware of the potential risks because they very much believe in the banks' reputation," Wu said, adding that she had received complaints from customers of bank-issued wealth management products.

She warned that should the capital market go bust, investments in these products could incur losses and lead to social instability had customers not been well informed of the risks.

Wu said the threshold for an individual private-equity investor in China should be CNY500,000-CNY1 million.

She added those saving less than CNY100,000 had better put their money in safe places such as bank deposits and treasury bonds, and never invest more than one-third of their money in securities funds.

"I myself put my savings in no other places than bank deposits and treasury bonds, anyway," said Wu, describing herself as a conservative investor.

-Sun Yan contributed to this story; Dow Jones Newswires;