China bars banks from selling commodities-linked products to retail buyers -sources

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BEIJING — China’s banking regulator has requested lenders to cease promoting funding merchandise linked to commodities futures to mom-and-pop patrons, three individuals with information of the matter instructed Reuters, to curb funding losses amid risky commodity costs.

It has additionally requested lenders to utterly unwind their present books for these merchandise, which they manufacture and promote to particular person traders, mentioned the sources, who’re concerned in and have been briefed on the choice.

The China Banking and Insurance coverage Regulatory Fee’s (CBIRC’s) order to exit these merchandise has not been reported earlier than. It issued the order this yr, two of the sources mentioned.

“The chance contained in banks’ commodity-linked investments can’t be simply noticed by atypical traders, neither can they bear it,” one of many sources mentioned. “Banks additionally don’t have sufficient experience to run such merchandise correctly.”

The sources spoke on situation of anonymity because the directive will not be but public. The CBIRC, China’s high banking watchdog, didn’t instantly reply to a Reuters electronic mail searching for feedback.

The transfer comes as runaway commodity costs in each onshore and offshore markets have raised regulatory issues concerning the dangers of speculative bets, prompting China’s state planner and exchanges in latest weeks to take price-control measures https://www.reuters.com/article/us-china-commodities-idUSKCN2D60A2.

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The CBIRC desires to forestall losses like that incurred a yr in the past by Financial institution of China (BoC) on crude-oil linked funding merchandise, the individuals added.

It has requested lenders, together with Industrial and Industrial Financial institution of China (ICBC), to report “clean-up progress” on commodities-linked funding merchandise on a month-to-month foundation to regulators, two of the sources mentioned.

The CBIRC has, nevertheless, not given a particular deadline to the banks for utterly exiting their positions, they added.

The ICBC didn’t instantly reply to a request for remark.

Whereas the overall dimension of such merchandise within the Chinese language banking system is unknown, BoC’s $1.8 billion losses tied to simply U.S. crude futures highlights the attractiveness of comparable merchandise for retail traders searching for increased returns.

FULL SECTOR CLEAN UP

Regulators are apprehensive mom-and-pop traders might get burnt once more by the latest large swings in commodity costs, pushed by post-pandemic demand restoration, liquidity easing and speculative buying and selling. Authorities watchdogs have urged Chinese language industrial steel corporations to keep up market order.

BoC’s losses final yr had worn out a number of hundreds of such small accounts held by retail traders, starting from faculty college students to retired employees, prompting the CBIRC on the time to ask industrial banks to halt new gross sales of a variety of funding merchandise linked to commodity futures.

Given the latest value volatility, the ban on new gross sales has been widened to a full sector clean-up, masking merchandise linked to commodities not particularly focused earlier than, comparable to gold, silver, platinum, palladium, pure fuel and soy beans, the three sources mentioned.

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Costs of most of those commodities have spiked in latest months, whereas futures costs for iron ore and corn on the Dalian Commodity Change in addition to metal and copper on the Shanghai Futures Change have all hit document highs this yr.

Some banks are contemplating methods to shift a part of their present commodity-linked investments and shoppers to affiliated brokerages, however that can want a nod from the securities regulator, one of many sources mentioned.

Whereas banks’ derivative-like merchandise have flaws in design and danger management, analysts say a harsh sector-wide clean-up means a significant setback in China’s plans to open up the market.

Regardless of repeated vows to ramp up monetary derivatives, Shanghai Futures Change has already halted collaboration with banks on the launch of recent by-product merchandise within the wake of BoC’s losses, two separate sources instructed Reuters. ($1 = 6.3921 Chinese language yuan) (Reporting by Cheng Leng, Ryan Woo, and Shanghai Newsroom; Enhancing by Sumeet Chatterjee and Himani Sarkar)