China’s banking regulator has asked lenders to stop selling investment products linked to commodity futures to mom and family buyers, three people with knowledge of the matter told Reuters in an effort to cut losses from investment in a context of volatile commodity prices.
He also asked lenders to fully unwind their existing books for these products, which they manufacture and sell to individual investors, said the sources, who are involved and have been made aware of the decision.
The order from the China Banking and Insurance Regulatory Commission (CBIRC) to phase out these products has not been reported before. He released the order this year, two of the sources said.
“The risk contained in the commodity-related investments of banks cannot be easily spotted by ordinary investors, nor can they bear it,” said one of the sources. “Banks also don’t have enough expertise to properly manage these products.”
The sources spoke on condition of anonymity as the directive is not yet public. The CBIRC, China’s main banking supervisory body, did not immediately respond to an email from Reuters seeking comment.
The move comes as soaring commodity prices in the onshore and offshore markets have raised regulatory concerns about the risks of speculative betting, which has prompted the state planner and Chinese exchanges in recent weeks to take price control measures.
The CBIRC wants to avoid losses like the one suffered a year ago by the Bank of China (BoC) (601988.SS) on crude oil-related investment products, the sources added.
It has asked lenders, including the Industrial and Commercial Bank of China (ICBC) (601398.SS), to report monthly on “cleaning progress” of commodity-related investment products to regulators, two of the sources said. .
The CBIRC, however, did not give a specific deadline for banks to fully exit their positions, they added.
ICBC did not immediately respond to a request for comment.
Although the total size of these products in the Chinese banking system is unknown, the BoC’s $ 1.8 billion losses from US crude futures alone highlight the attractiveness of similar products to investors. retailer looking for higher returns.
COMPLETE CLEANING OF THE AREA
Regulators fear mom-and-pop investors will be burned again by recent sharp swings in commodity prices, driven by the recovery in post-pandemic demand, easing liquidity and speculative trading. Government watchdogs have urged Chinese metallurgical companies to maintain order in the market.
The BoC’s losses last year wiped out several thousand of these small accounts held by retail investors, ranging from students to retirees, prompting the CBIRC at the time to ask commercial banks to shut down the news. sales of a wide range of commodity-related investment products. future.
In view of the recent price volatility, the ban on new sales has been extended to a complete restructuring of the sector, covering products related to commodities not specifically targeted previously, such as gold, silver, platinum, palladium, natural gas and soybeans, the sources said.
The prices of most of these commodities have skyrocketed in recent months, while the futures prices for iron ore and corn on the Dalian Commodity Exchange and steel and copper on the Shanghai Futures Exchange have increased. all reached record levels this year.
Some banks are considering ways to shift some of their existing commodity-related investments and customers to affiliated brokerage houses, but this will require a nod from the securities regulator, one of the sources said.
While bank derivatives show flaws in design and risk control, analysts believe that rigorous industry-wide consolidation means a major setback in China’s plans to open up the market.
Despite repeated urges to develop financial derivatives, the Shanghai Futures Exchange has already halted collaboration with banks on the launch of new derivatives following the BoC’s losses, two separate sources told Reuters.
($ 1 = 6.3921 Chinese yuan)
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