Leading finance companies to favor off-balance-sheet assets

The country's main finance houses are likely to focus on growing off-balance-sheet assets and increasing asset management activities, according to a report assessing China's asset management market.

Jointly released by China Everbright Bank Co Ltd and The Boston Consulting Group on Wednesday, the study suggested the national asset management market will grow by 87 percent to 174 trillion yuan ($27 trillion) by 2020, up from about 93 trillion yuan at the end of last year.

Between 2012 and 2015, it had a compound annual growth rate of 51 percent on average, but that's likely to be 13 percent over the next five years, the report said.

David He, a BCG partner and managing director, said the noticeable increase is driven by multiple factors including the reallocation of resident wealth from housing to financial assets, the growing demand for investment in pensions and endowment insurance prompted by an aging population, and the need for commercial banks to build more effective allocation mechanisms for credit assets while completing more diversified, marketized businesses.

Zhang Xuyang, general manager of asset management at China Everbright Bank, said: "In the past, Chinese financial institutions were more focused on the liabilities and owners' equity by supporting companies with loans and bond issuance.

"But now, as China undergoes an economic restructuring, banks also need to pay attention to the assets side, helping companies defuse bad loans through asset-backed securitization and replacing less-efficient corporate assets with those of higher efficiency, through industrial investment funds and buyout funds."

Hong Lei, president of the Asset Management Association of China, said that with the emergence of a growing number of small innovative companies specializing in different market segments, it would be unsuitable to allocate resources through large-scale credit funds, which will be replaced by capital raised in the form of asset management.

The report estimated that commercial banks offering wealth management products will be the most important player in Chinese asset management market by 2020, taking a leading 27 percent share of the market.

It will be followed by insurance asset management at 16 percent, with public and private equity expected to grow rapidly to 15 percent and 9 percent, respectively.

Mei Shiyun, deputy general manager of China Central Depository & Clearing Co Ltd, said the central securities depository is working with the China Banking Regulatory Commission on promoting the creation of independent third-party custodian institutions for wealth management related to banking institutions.

"We want to improve the custodian system by specifying the responsibilities of trustees in a number of aspects, including account opening, assets evaluation and information disclosure," he said.

"In this way, we'll make the wealth management market of the banking sector more transparent and better protect the interest of investors."