The numerator and denominator (total asset allocation) have expanded rapidly, which has resulted in a sharp decline in the proportion of non-standard assets in bank financial management.
The reporter learned from various investigations that the proportion of non-standard assets of six state-owned financial subsidiaries by the end of 2021 has been lower than 6.1%. This has also led to the collective decline in the proportion of non-standard assets in the group caliber of large state-owned banks (including the head office and wealth management sub), because the addition of non-standard assets in the old assets managed by the head office has long stopped.
There are deep-seated reasons for the shrinkage of the proportion of non-standard allocation scale: not only the rigid restrictions on non-standard scale, but also the market acceptance of long-term limited products suitable for carrying non-standard assets still needs to be improved.
“the increment needs to be done and the structure needs to be adjusted”. A bank financial management and investment manager told reporters that now non-standard investment has entered a new era. He is bidding farewell to the practice of unitary investment in urban investment, focusing on excavating customers such as state-owned enterprises and large private enterprises, and carrying out new varieties such as debt to equity swap, share reform and equity, Guide investors who are capable and willing to take risks to other areas of the capital market.
configuration proportion drops sharply
“We (non-standard) are still doing it, but the proportion fell by a full half in the second half of the year”, the reporter learned from a large bank’s financial management subsidiary. The company’s non-standard share was about 12% at the end of June 2021, and fell to more than 6% by the end of 2021.
The same situation has been staged in several other financial subsidiaries of major banks. The reporter was exclusively informed that by the end of 2021, the non-standard proportion of all six financial subsidiaries of state-owned banks was less than 6.1%. The reason why “6.1” has zero and whole numbers is that the above-mentioned financial sub group with non-standard accounting for more than 6% is the highest in the financial sub camp of the bank. Another two are close to 6%, and the lowest non-standard accounts for less than 3%. Compared with the middle of 2021, the proportion of the six non-standard companies decreased significantly or even halved, and the pressure drop trend continues.
The reduction of scale has both active and passive components. “Active” means to actively control the scale and meet the regulatory requirements: the regulatory requirements require that the balance of all financial products invested in non-standard creditor’s rights assets of financial subsidiaries shall not exceed 35% of the net assets of financial products at any time point. This provision is extremely important, because in the follow-up, with the clarification of the regulatory rules again and again, a major turning point occurred in practice: the Supervision identified the products released by yindeng center, Beijing stock exchange and other platforms as “non-standard”. Before that, the industry generally regarded them as “non-standard” and had great expectations for their conversion into standardized assets. After this part of the 2-3 trillion “non-standard” is included in the non-standard, the non-standard amount suddenly appears very nervous.
In addition to the 35% limit, the risk coefficient of non-standard assets is also set relatively high when withdrawing venture capital. The measures for the administration of net capital of financial management subsidiaries of commercial banks (for Trial Implementation) stipulates that the risk coefficients of bonds and stocks are 0, while non standardized creditor’s rights assets are set according to the risk coefficients of 1.5%, 2% and 3% respectively. A professional from the project evaluation department of a financial subsidiary pointed out that the risk coefficient of non-standard creditor’s rights of guarantee and credit has been higher than the benchmark of 1.5% of the equity investment business of non-listed companies, which means that it is difficult for banks to invest in non-standard business with financial products to produce scale effect.
“Passive” means that the increase of denominator (total assets) is much larger than that of numerator, which makes the non-standard proportion decrease passively. The surge in standardized assets has greatly boosted the growth of total assets. In addition, in the past two years, the growth rate of the scale of non-standard assets as molecules has slowed down or even stood still, and the proportion of non-standard assets allocated by financial sub allocation has continued to decline.
“The growth acceleration of numerator and denominator is different. The denominator is mainly supported by standard (assets), and the amount is fast; but non-standard is really difficult to invest, and the cycle is long. For fixed income, you can also refer to external rating agencies, and the non-standard credit risk review is entirely on your own”, an investment manager in charge of non-standard items told reporters.
“Most of the cash products can’t be matched. In addition, the substitutes for cash management, the shortest holding period and the investment cycle can’t be matched with non-standard products. Therefore, in this way, I feel that at least 20% – 40% of the non-standard and limited products that can be matched should be non-standard.”, A person from a financial management company analyzed it to reporters.
Everbright Securities Company Limited(601788) the financial industry research team once made an analysis, saying that the weighted average term of closed-end financial products has been rising steadily, from 161 days at the end of 2018 to 357 days in September 2021, but the team expects it to be more than one year by the end of 2021. What does that mean? This verifies the judgment of the above financial management industry: most products issued by financial management subsidiaries are not suitable for non-standard terms. Two people from financial management companies told reporters a rough figure: the average term of their non-standard assets is between 1.3-1.6 years.
To sum up, non-standard investment is constrained in many dimensions such as capital end, asset end, product end and operation end. In addition, the rapid growth of standardized assets has pushed up the denominator (i.e. total assets), and the proportion of non-standard investment has dropped sharply, which has become a common feature of many financial management subsidiaries.
non standard investment structure changes
In the interview, the common view emphasized by different interviewed professionals is that non-standard is very important. From the perspective of the allocation needs of the institution itself, non-standard funds are of great positive significance for medium and long-term funds such as insurance, sovereign funds and annuities to seek stable assets. For bank financial management, non-standard products are necessary to stabilize the net value and increase the income.
Since the implementation of the new regulations on asset management, the share of entrusted loans and trust loans that used to be non-standard main distribution varieties has continued to shrink. According to the reporter’s preliminary understanding, each non-standard configuration focuses on different aspects. Some non-standard financial sub businesses are mainly configured with interbank loans, private placement supply chain and varieties of Beijin exchange; Some financial management subsidiaries are mainly configured with urban investment and Beijin office.
“Of course, we want non-standard, but there is a shortage now, which is what we call ‘non-standard under matching’.”, A bank financial person said bluntly. “In the current low interest rate environment, it is difficult to achieve 2.5% of the revenue of standardized products. Assuming that our products need to give customers more than 4% to be competitive, it means that we need to allocate more than 5.5% of non-standard assets in our products. In fact, this is also a universal problem faced by the whole bank’s wealth management, which is a shortage of high-yield assets.”, The person analyzed to reporters.
Under the environment of low interest rate, one side of bank financial management is the “non-standard shortage” swept silently, which is suitable for the shortage of non-standard asset reserves; On the one hand, the pressure drop of stock non-standard assets is difficult. Professionals from the project evaluation department of the aforementioned financial management subsidiary said: most of the non-standard assets that their bank currently disposes of at the level of the asset management department of the head office are long-term assets, such as equity projects and industrial fund projects of some unlisted companies, with a term of more than 7 or 8 years; There are also some public equity and real debt businesses. At present, there is no corresponding business variety to meet the financing needs of equity, which can be undertaken and cannot be returned to the table.
But the phenomenon of good inflection point is happening in the field of non-standard investment. The above-mentioned investment manager in charge of non-standard projects told reporters that the connotation of his work has undergone some substantive changes since the second half of last year – less urban investment, less real estate, and more convertible bond projects. In his view, now non-standard investment has entered a new era. We are bidding farewell to the practice of unitary investment in urban investment, focusing on the customer groups such as state-owned enterprises and large private enterprises, and carrying out new varieties such as debt to equity swap, share reform and equity. “The non-standard investment of our company has been increasing all the time, but the growth rate is certainly not as fast as that under the old model of single investment and urban investment. But this is certainly a trend, and the non-standard investment is also diversifying.”, The investment manager said.
This is also in line with the previous call of the industry. Liu Feng, director of China’s chief economist forum, once wrote that we should actively explore the use of modern financial engineering technology for asset securitization of investment targets, such as the trust arrangement and listing of “joint-stock reform”, “debt to equity”, “usufruct” and “property right”. Give full play to the advantages of data and technology, make use of financial engineering and structured financial design, adopt the mode of shares plus bonds to provide financing to enterprises, realize risk control by controlling part of the equity or core assets of enterprises, and provide enterprises with more direct, more economic and more formal financial services. For example, through the transfer of the right to receive (receive) benefits from the real estate, land, production line and other assets that are not acceptable to banks, and lock in the appropriate cash flow, issue securitization financial products.
In 2022, the non-standard new era will begin.
