THE issue of risky wealth management products sold by banks which turn out problematic and cause investors to lose their entire savings is credit negative for Chinese lenders, Moody's Investors Service said yesterday.
Beijing-based Hua Xia Bank is being investigated by the China Banking Regulatory Commission's Shanghai Office and the police after allegations that a former employee sold such risky wealth management products without permission.
The investigation and investors' anger are credit negative for Chinese banks and highlight the risks of implicit liability in the banks' fast-growing wealth management product business, Moody's said in a report.
Even if the investigation does not find Hua Xia liable, banks in general will take a hit to their reputation that could adversely affect their overall business, Moody's added.
The rating agency warned that "any legal liability assigned to the bank would set a precedent for banks and investors in future similar cases. We see such risks as a recurring credit risk as banks strive to introduce new products to increase non-interest income."
Moody's said the investigation further underscores the risk that banks face from potential fraud and misconduct arising from China's burgeoning wealth management product sector.
Cumquat market in S China's Guangxi
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