CHINA’S central bank has told banks it will require greater control over the amount of wealth management product funds they give to brokerages and other financial institutions to manage, according to sources familiar with the matter.

    The People’s Bank of China told large commercial banks that it will impose more limits on the amount of proprietary funds managed by other institutions and it will tighten control of leverage taken on when buying bonds, the sources said.

    Chinese banks have been scaling up their wealth management businesses as they vie for deposits. Standard & Poor’s estimates the banking sector’s outstanding off-balance-sheet wealth management products grew 35 percent to 13.6 trillion yuan (US$2.1 trillion) in 2015, it said in a note.

    China’s bank lending may have soared last month to a record 2 trillion yuan amid slowing economic growth, according to a central bank researcher.

    “This is clearly aimed at controlling risks in the banking sector,” said He Xuanlai, Singapore-based credit analyst at Commerzbank AG. “It’s not a standalone move. It’s actually in line with the tightening in bill-financing, following recent media reports of fraud cases.”

    Growing reliance on wealth management products to manage regulatory capital ratios “could undermine the banks’ true capitalization because a majority of these off-balance-sheet wealth management products just serve as a handy funding tool rather than a channel to offload credit risks,” analysts at Standard & Poor’s led by Qiang Liao wrote in the note. (SD-Agencies)