Chinese bank wealth units seek to smooth performance amid redemptions

Chinese bank wealth units seek to smooth performance amid redemptions
Skyscrapers at the central business district, including AIA Central, China Construction Bank (CCB) Tower, Bank of China Tower, Cheung Kong Centre, HSBC and Standard Chartered Bank headquarters, are seen through a fence during sunset in

SHANGHAI: The asset management arms of some Chinese banks are turning to an accounting method that smoothes out the performance of wealth management products as they try to stem a rise in redemptions, two sources familiar with the matter told Reuters.

Under so-called “amortised cost” accounting, total returns from fixed income products are spread out evenly, with the goal of delivering steady gains irrespective of bond price fluctuations.

Some bank wealth management units plan to increase the proportion of products that adopt this accounting method in response to a rise in redemptions, the sources said, speaking on condition of anonymity.

China’s banking regulator did not immediately reply to a request for comment.

Chinese bond prices started to drop in early November as the government took steps to boost the economy and investors bet on an unwinding of the zero-COVID policy, resulting in unrealized losses in many wealth management products.

Risk-averse investors have shifted money out of such products, even as asset managers urge them to hang on, as the products may recover from their current losses.

Sources told Reuters last week that Chinese regulators were urging insurers to help stabilize the bond market as fund redemptions increased.

Source: Reuters