Source: China Bank and Insurance News
Editor's note:
2021 marks the end of the three-year transition period for the new asset management regulations. In 2022, the financial management market will break rigid payments, achieve real net worth of products, and completely return to the roots of asset management business. This also means the advent of the era of large asset management. Since the introduction of the new asset management regulations, the industry supervision system has been continuously improved, and reform goals such as unifying regulatory rules and net worth transformation have made great progress, gradually moving towards a healthy development path. The asset management transformation has come to an end. As the industry most affected by the new asset management regulations, how is bank financial management and trust rectification going? After the transition period is over, what kind of attitude will they take to start again? This issue will explore related topics in depth.
□ This newspaper's reporter, Hu Yang, Fan Rongjie
In 2018, the “Guiding Opinions on Regulating the Asset Management Business of Financial Institutions” (hereinafter referred to as the “New Asset Management Regulations”) jointly issued by four departments including the People's Bank of China and the China Banking Insurance Regulatory Commission officially kicked off the intense transformation of the asset management industry. Considering that the rectification covers a wide range of areas, the scale is huge, and that it is difficult to establish a bank reform, the new asset management regulations set a transition period until the end of 2020. The sudden outbreak of the COVID-19 pandemic posed serious challenges to the smooth transformation of the asset management market. As a result, the transition period for the new asset management regulations was extended until the end of 2021.
The status quo has been broken, and the rectification has been completed as scheduled
According to the Banking Insurance Regulatory Commission, judging from the preliminary survey situation, it is expected that by the end of this year, the vast majority of banking institutions will be able to complete the rectification tasks as scheduled. The few remaining assets that are difficult to dispose of by individual banks will be included in special disposal on a case-by-case basis in accordance with relevant regulations until all are cleared.
The establishment of bank financial management subsidiaries is one of the important influences brought about by the new asset management regulations. In the long run, financial management subsidiaries will be the core starting point for commercial banks to expand their off-balance sheet scale and participate in asset management and wealth management transformation. Up to now, 25 bank financial management subsidiaries and 4 foreign-funded bank financial management subsidiaries have been approved for establishment or operation. Since approving the opening of the first batch of financial management subsidiaries in 2019, the Banking Insurance Regulatory Commission has implemented the “mature one, one approved” attitude. Based on high establishment standards, financial management subsidiaries in operation are also showing a good momentum of development at this stage. According to the “China Banking Industry Wealth Management Market Half-Year Report”, by the end of June 2021, financial management subsidiaries had surpassed joint stock banks to become the type of institution with the largest number of surviving wealth management products.
Breaking rigid payments and achieving net worth management is a core spirit of the new asset management regulations. The “capital protection and income protection” previously sought by bank wealth management products was essentially underpinned by mismatching risks over time periods. In the long run, it may trigger systemic financial risks. After the new asset management regulations were issued, bank financial management gradually adjusted its product structure, raised the level of investment and research, and smoothly promoted the net worth transformation. Eventually, it returned to the roots of “being trusted by others, managing money on behalf of others.” By the end of the third quarter of 2021, the bank wealth management market was 27.95 trillion yuan, of which net worth accounted for 86.56%. The “Long March” of transformation was only the last step.
From a product perspective, after the introduction of the new asset management regulations, new bank financial management products were mainly divided into three categories: fixed income (including cash management financial management and non-cash management fixed income financial management), hybrid types, and equity categories. The product system has gradually taken shape. According to the data, as of the end of June 2021, fixed income financial management was 22.75 trillion yuan, of which cash management financial management was 7.78 trillion yuan; hybrid financial management was 2.96 trillion yuan; and equity financial management was 84.3 billion yuan.
As bank financial management enters the era of net worth, the net value of wealth management products fluctuates more. Wealth management income depends entirely on actual investment results, and the original expected return rate no longer exists. Taking the first half of 2021 as an example, there were 1,173 newly issued bank wealth management products that fell below the initial net worth, accounting for about 4.59% of the total number of newly launched products. At the same time, the number of investors holding net worth wealth management products also showed a continuous upward trend, and the number of investors in non-net worth products gradually declined. By the end of June 2021, the number of investors holding net worth wealth management products accounted for 94.80%, an increase of about 24 percentage points over the same period last year. This means that investors' acceptance of net worth wealth management products is constantly increasing.
In fact, the financial management business will break the expectations of rigid payments and gradually develop, forcing bank financial management to bring investors better wealth returns with more professional asset management capabilities, requiring investors to establish the concept of long-term rational and value investment.
Looking at the trust industry, the latest data shows that as of the end of the third quarter of 2021, the trust asset balance managed by the trust industry was 20.44 trillion yuan, down 2% from the previous year and 22.11% from the peak at the end of the fourth quarter of 2017. Since the new asset management regulations were issued, the trust industry has been guided by strict supervision, the scale of trust assets has continued to drop, and changes in scale have stabilized.
Looking at funding sources, as of the end of the third quarter of 2021, single-fund trusts accounted for 25.04%, a decrease of 2.11 percentage points over the previous month. Since the fourth quarter of 2017, the size and share of single-fund trusts, mainly channel businesses, has declined year by year, with a year-on-year decline of more than 20% since 2021. Some analysts pointed out that the scale of pooled fund trusts and asset management trusts has maintained steady growth, reflecting that trust companies are actively planning business transformation.
Judging from the trust function, since the second quarter of 2020, the trust industry has vigorously reduced the pressure on financing businesses with shadow banking characteristics. By the end of the third quarter of 2021, the size of financing trusts was 3.86 trillion yuan, a year-on-year decrease of 35.13%, accounting for 18.88%, and a year-on-year decrease of 9.64 percentage points.
As the financing business is gradually being put under pressure, Standard Trust has become a key area of trust companies' business transformation. By the end of the third quarter of 2021, the balance of capital trusts invested in the securities market was 3.06 trillion yuan, an increase of 38.12% over the previous year; the share of trusts in the securities market rose to 19.50%, an increase of 6.66 percentage points over the previous year. The growth in securities market trusts is mainly due to a sharp year-on-year increase in fund trust products invested in stocks and bonds, especially fund trust products invested in bonds.
Furthermore, the trust industry is transforming at an accelerated pace, and the related service trust business is also growing rapidly. According to data from China Trust Registration Co., Ltd. (hereinafter referred to as “China Cindeng”), at the end of 2020, the size of family trusts increased by 80.29% compared to the beginning of the year, and continued to rise for 4 consecutive quarters. In addition to family trusts, trust companies make full use of the advantages of trust asset independence and bankruptcy isolation systems and participate in public-sector prepaid fund management through the service trust model. In addition, the trust industry has introduced special needs trusts, special asset trusts, etc. to solve current social and economic pain points and difficulties.
Since the new asset management regulations, the trust industry has adjusted its development momentum at an accelerated pace, and its transformation results have also been recognized by investors. According to the latest data released by China Cindon, as of the end of the third quarter of 2021, the number of investors in trust products in China continued to grow, and the number of individual investors in stock exceeded 1 million for the first time. China Cindon believes that the above data shows that individual investors' recognition of trust products continues to increase, and trust companies are actively transforming and developing wealth side businesses to provide individual investors with increasingly rich wealth management services, which is also a major factor in attracting investors to favor trust products.
Difficulties and solutions faced in the process of problem transformation
Non-standard assets have always been an advantage of bank financial management. After the new asset management regulations were issued, the financial management and investment side of banks faced the transformation test of “non-standard tendering.” With the official introduction of the “Standardized Claim Asset Recognition Rules”, it is difficult to achieve “non-standard transtenders” of some assets. Considering that non-standard assets are an important starting point for wealth management products to increase profits, this has also led to a decline in bank wealth management yields, close to fixed income public funds, declining customer appeal, and increasing sales difficulties. Under such circumstances, financial management subsidiaries chose to explore further enrichment of wealth management product lines, and gradually carry out asset allocation such as equity in addition to allocating fixed income assets. At present, FOF (funds within funds) type wealth management products have begun to take shape, becoming a way for financial management subsidiaries to lay out equity asset markets.
As the net worth transformation progresses, bank financial management has successfully broken rigid payments through a series of means such as adjusting investment allocations and standardizing valuation methods, but how to break investors' expectations of rigid payments has become a new problem plaguing bank financial management. For a long time, the people who favored bank financial management were people who were relatively risk-averse. Judging from the situation at the end of the first half of this year, most bank financial investors hold products with a risk level 2 (medium to low). The number of investors was the largest (58.19%), and the total amount held was also the largest (68.61%). This also means that in the groups with conservative risk appetite and steady demand for returns mentioned above, many investors may still have a traditional perception that bank financial management may still have rigid payments or expected returns.
How to guide investors to accept net worth trends? There are two common consensus in the industry: One is to make it clear to investors — short-term account losses do not mean that short-term returns will eventually be shown. Long-term investments can withstand short-term market fluctuations, investors can exchange time for value, and ultimately reap stable investment returns. The second is to do a good job of risk warning and information disclosure. Under a more standardized and standardized mechanism, investors can understand the potential risks of bank financial management by improving product transparency, and then independently decide to choose products suitable for their own risk tolerance.
Looking at the trust industry, in addition to the new asset management regulations, in the “Minutes of the National Court Civil and Commercial Trial Work Conference” issued in 2019, the principle of “seller's responsibility, buyer's own responsibility” in trading financial products was once again clarified.
However, similar to bank financial management, rigid payments have been one of the persistent problems in the trust industry for a long time.
The principle of “seller is responsible, buyer is responsible” may seem simple, but in the past practice of trust development, it was difficult. Over the years, along with rapid economic growth, trust products have gradually become high-quality financial management tools in the eyes of many high-net-worth people. “Earnings are higher than bank financial management, and it is impossible for a trust company not to pay on time” is what many people understand about trusts, and their previous investment experience has convinced them of this. Rigid payments are viewed by investors as unwritten rules of trust companies.
The “China Financial Stability Report (2020)” states that trust companies should actively disclose product information truthfully, accurately, completely and in a timely manner, strengthen investors' proper management, and raise investors' awareness of “buyer responsibility” on the basis of “sellers' due diligence”.
In order to do a good job in educating trust investors, promote the purpose of trusts to be trusted and loyal, and convey the investment concept of “sellers are responsible, buyers are responsible”, in recent years, the China Trust Industry Association has hosted many investor education sites and online events, and various trust companies have also carried out investor education activities through various forms such as online and offline.
For trust companies, breaking the initial exchange is also an important step on their way back to their roots. In recent years, some trust companies have been gradually exploring ways to break up Gongyuan. Trust companies have accelerated their exploration of product net worth management. Net worth management can reflect changes in the quality of trust assets in a timely manner, help investors keep track of the risk-return status of invested products in a timely manner, increase the liquidity of trust products, and help investors achieve correct investment decisions. Although the trust industry is actively exploring, breaking the initial exchange was not a one-day success. At a time when industry risks are being revealed at an accelerated pace, how to effectively protect the legitimate interests of investors while solving the problems that have just come to fruition for many companies.
In addition to breaking the recent exchange rate, the future development momentum of trust companies is also receiving attention from the industry. Some analysts pointed out that after the introduction of the new asset management regulations, trust companies were hit hard, and the advantages of the original system were seriously weakened. However, the urgency for the transformation and development of some trust companies is still not strong, and there is a strong sense of wait-and-see. First, the trust system is flexible and changeable. Countries have different paths and experiences in developing trust business. There is little experience in trust business transformation suited to China's national conditions, causing trust companies to be confused about their future development path. Second, traditional businesses still provide high returns. Trust companies can rely on traditional businesses to achieve relatively impressive performance, and there is a strong development path dependency. Third, some trust companies do not have a high enough sense of innovation and transformation. Their ideas for the exhibition industry are still limited to those before the new asset management regulations. There is insufficient investment in innovation and transformation, and they even have a sense of fear, favoring the former between short-term interests and long-term interests, steady development and strategic risks. All of these may lead to missed opportunities for long-term sustainable, high-quality development.
Looking ahead, some persistent diseases still need to be strengthened
The research team of CITIC Securities clearly believes that although the bank financial management reform has basically been successfully completed according to the plan, there are still some persistent problems that need to be strengthened. It is expected that they will become the most noteworthy points in financial management development before and after the transition period ends and even in future financial management development. For example, approval for the establishment of financial management subsidiaries has been slowed down. The supervisory authorities are gradually restricting the financial management business of small and medium-sized banks, leading them to pay attention to credit business and return to their roots. Bank financial management subsidiaries are positioned between “subsidiaries that serve the parent bank” and “investment institutions that maintain independence”. To a certain extent, they are responsible for underwriting the parent bank's assets, while for institutions such as the Chengnong Commercial Bank, which cannot establish financial management subsidiaries, their stock scale will gradually be digested.
According to the “2021 China Banking Industry Development Report”, commercial banks will accelerate transformation in the three areas of wealth management product design, product sales, and technological transformation at present and in the coming period. In terms of product design, bank financial management will continue to increase product innovation, enrich product lines, reduce large-scale reliance on cash management products, and increase net worth products that focus on fair value. In terms of product sales, bank financial management subsidiaries are used as representatives to continuously expand sales channels, explore the establishment of independent sales channels, shift from completely relying on parent bank channels to a model combining “parent bank consignment plus company direct sale+other bank proxy sales”, and gradually establish an investment advisory system. In terms of technological transformation, the bank's financial management business continues to deploy technological asset management, drawing on advanced experience from well-known overseas institutions such as BlackRock to build a large-scale asset pricing system to serve all types of institutions throughout the market.
The Prudential Standard indicates that the field of financial management business will gradually diverge. Among them, large commercial banks will give full play to the exhibition advantages of financial management subsidiaries in asset management business and accelerate the implementation of the “asset management+wealth management” two-wheel drive development strategy. In terms of wealth management, large commercial banks are actively expanding their wealth management business, enriching their own wealth management product shelves, which are complemented by distributing wealth management products from other banks to meet the diversified investment needs of investors. In terms of asset management, large commercial banks have improved their asset allocation capabilities. On the one hand, they have widely deployed fixed income, fixed income +, hybrid, and equity products, and on the other hand, they have formed their own market barriers to occupy market space through differentiated strategies. Compared with the “multiple and complete” product types of financial management subsidiaries of large state-owned banks, the product lines of financial management subsidiaries such as joint stock banks and urban commercial banks stand out more for their differentiated strategic positioning. Compared to products issued by Chinese financial management subsidiaries, which are mainly low-risk fixed income and fixed income+ products, Sino-foreign joint venture financial management subsidiaries rely on their strong investment and research capabilities and rich fund management experience to issue products more aggressively.
Zhou Ping, a special researcher at the China Trust Industry Association, said that pressure reduction in financing and channel business is an inevitable requirement to prevent industry risks, avoid hidden risks brought about by blind expansion of the industry, and promote the sustainable development of the industry. Trust companies should improve their standing, enhance their overall awareness, implement supervisory deployment arrangements, and reduce pressure channels and financing business scale in an orderly manner. Since 2018, with macroeconomic and policy changes, the expansion of traditional financing businesses in the trust industry has been limited, and various trust companies have gradually developed asset management services and vigorously developed standardized trust products. In the future, trust companies should actively embrace the capital market, seize new opportunities, enhance active management capabilities, rely on the advantages of “investment banking+asset management”, establish product lines with their own characteristics, and build differentiated competitive advantages in segmented fields.
Xing Cheng, dean of SDIC Taikang Trust Research Institute and a researcher at the Financial and Law Research Center of Tsinghua University Law School, believes that trust companies should start from two aspects. First, respond positively to regulatory requirements, increase the allocation ratio of standardized assets (including stocks, bonds, etc.), and focus on improving the investment and research capabilities of standardized assets, and try to improve the yield of standardized asset products and enhance product competitiveness through FOF, fixed income +, etc.; second, do a good job in the field of asset securitization and family trust services by combining their own resource endowment advantages Strengthening business Layout to improve competitiveness.