Due to the absence of seasonal financial management factors, coupled with the expectation of further reductions in deposit interest rates and the continued fermentation of manual interest supplements, financial management remains a good substitute for deposits in the next phase. Multiple factors will promote the financial management scale to return to a growth trend. Subsequently, as small and medium-sized banks accelerate the reduction of financial management, the scale is expected to further concentrate towards financial management subsidiaries, which is beneficial for the increase in asset management income of licensed institutions.

It has been reported that recently, many banks in Shandong, Chongqing, Hunan, and other provinces that have not established financial management subsidiaries have received regulatory notices requiring the reduction of the existing financial management business scale before the end of 2026. It can be seen that a new round of financial management rectification is slowly starting.

Since 2024, the scale of financial management has increased rapidly, especially the manual interest supplement has promoted the continuous rise of the financial management scale in May. In April, the National Market Interest Rate Pricing Self-Discipline Mechanism issued the "Initiative on Prohibiting High-Interest Deposit Attraction through Manual Interest Supplements to Maintain Deposit Market Competition Order", requiring rectification to be completed within April. In the short term, non-bank institutions and some enterprises with income requirements for corporate deposits cannot find suitable substitutes, making financial management and the bond market the best choice.

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The April social financing data shows that on the one hand, non-financial corporate deposits decreased by 1.87 trillion yuan in a single month, which is a significant decline compared to previous Aprils and is a typical non-seasonal factor, mainly due to the rectification of manual interest supplements. On the other hand, residents' deposits decreased by 1.85 trillion yuan year-on-year, which also shows a significant decline compared to previous Aprils, mainly due to the multiple reductions in deposit interest rates causing the transfer of deposits.

By the end of May, the scale of bank financial management products in existence was about 28.98 trillion yuan, an increase of 2.18 trillion yuan compared to the end of 2023, and has continued to rise since the low point of the financial management redemption tide at the end of 2022, approaching the peak at the end of 2021 and in mid-2022, close to 30 trillion yuan. The rectification of manual interest supplements has prompted corporate deposits to disintermediate and promote the continuous rise of the entire market's financial management scale.

The reduction of non-financial management subsidiary scale is less than expected.

The scale of financial management of non-financial management subsidiaries has been continuously reduced since the new regulations on asset management. Statistical data shows that by June 2023, the scale of financial management of non-financial management subsidiaries decreased by 740 billion yuan compared to the end of 2022, and by the end of 2023, it decreased by 340 billion yuan compared to June 2023. Under the market situation where the entire market's financial management scale is expanding, the reduction speed of the financial management scale of non-financial management subsidiaries has slowed down, and it is expected that the scale reduction of some small and medium-sized banks without financial management licenses in some regions is less than expected.

By the end of 2023, the total assets of domestic financial management subsidiaries generally increased compared to 2022. From the disclosed data of institutions, the growth rate of financial management subsidiaries of joint-stock banks was relatively fast, generally achieving more than 10% asset growth, and city commercial banks showed some differentiation, with Suzhou Bank Financial Management, Beijing Bank Financial Management, and Qingdao Bank Financial Management achieving more than 15% asset growth, with Suzhou Bank Financial Management reaching the highest 22.8% in the entire market.

Since the financial management redemption tide at the end of 2022, financial management subsidiaries have introduced policies to reduce fees and benefits, and the operating performance of financial management subsidiaries has generally shown "increase in quantity and decrease in price". On the basis of the expansion of total asset scale, the profits in 2023 generally showed negative growth. Among the 21 domestic financial management subsidiaries that disclosed net profit data, only 6 achieved positive profit growth.

The contribution of financial management subsidiaries to the profits of the parent bank is generally within 5%, with only Qingdao Bank Financial Management (8.42%) and Hangzhou Bank Financial Management (6.14%) exceeding 5%. The profit contribution of financial management subsidiaries of state-owned large banks is generally within 1%. The operating performance of financial management subsidiaries is "increase in quantity and decrease in price", and the contribution to the profits of the parent bank needs to be improved. Accelerating the rectification of non-financial management subsidiaries helps to improve the industry concentration.Data from China's financial management website shows that by the end of 2023, the scale of non-wealth management subsidiary financial management was 4.33 trillion yuan, accounting for 19% of the total financial management scale, which has been reduced by 1.08 trillion yuan compared to the end of 2022. Further observation of the data at the end of May, according to the statistics of Puyi Standards, by the end of May 2024, the total market financial management scale was 28.98 trillion yuan, and the financial management scale of wealth management subsidiaries was 25.27 trillion yuan, then the financial management scale of non-wealth management subsidiaries was 3.71 trillion yuan, roughly estimating that the financial management scale of non-wealth management subsidiaries has continued to reduce by 620 billion yuan compared to the beginning of the year. If this regulatory guidance is implemented quickly, the financial management scale of non-wealth management institutions will start to accelerate the reduction in the second half of the year, and it is expected that by the end of 2024, the financial management scale of non-wealth management may be reduced to about 3 trillion yuan.

In the short term, in June, the financial management scale may fluctuate due to the impact of wealth management returning to the table. At present, there is pressure on the bank's deposit side but it is controllable, and the impact on the bond market may be limited. Banks generally face deposit assessments at the end of the quarter, and wealth management usually appears at the end of the quarter.

The current deposit pressure comes from two aspects: First, in the current cycle, deposit interest rates have been reduced multiple times, and the manual interest supplement rectification in April has led to a phenomenon of deposit migration; Second, there is a certain complementary relationship between the current bank's active liability cost and the cost of fixed deposits. Banks can rely on low-cost active liabilities to support the scale of liabilities, but behind the deposits is the customer base, and the market share of deposits is still a bottom-line indicator that many banks need to consider before adjusting deposit interest rates.

However, banks are also facing the problem of asset scarcity, and the financial added value adjustment assessment indicators, so it is expected that the overall liability side of banks will have pressure but the pressure is controllable. Overall, by the end of June, bank deposits may still have certain pressure. It is expected that the strength of wealth management returning to the table in the last week of June may increase marginally, but the scale of returning to the table is controllable overall, and the impact on the bond market may be limited.

Although the financial management scale fluctuates, it is overall controllable. Looking forward to the second half of the year, due to the absence of seasonal wealth management returning to the table factors, coupled with the expectation that deposit interest rates may still be reduced, and the continued fermentation of manual interest supplements, wealth management is still a good substitute for deposits in the next stage. After the rectification of manual interest supplements, short-term non-bank institution deposits and some corporate deposits requiring returns cannot find suitable substitutes and will continue to shift towards wealth management and the bond market. In addition, the probability of new policies for real estate and other policies in the short term is not high, and more is the refinement and implementation of existing policies. The expectation of interest rate cuts in the second half of the year still exists, and banks are under pressure from interest rate spreads. It is also expected that deposit interest rates will be reduced in the second half of the year, and residents' deposits also need stable substitutes.

In the first quarter of 2024, the National Bureau of Statistics and the People's Bank of China's headquarters adjusted and optimized the financial industry accounting method, and optimized the quarterly accounting method for the financial industry value added, mainly adjusting the accounting method for monetary financial services. The optimized accounting method mainly refers to bank profit indicators, including the growth rate of net interest income, the growth rate of net fees and commissions, etc., for calculation. At present, bank fees are affected by the reduction of agency business fees, and the growth is weak. As an important part of fees, wealth management (wealth management) income, the parent bank will put forward higher requirements for the income contribution of wealth management subsidiaries.

From the overall perspective of bank non-interest income, it is still too early for the bank's proprietary trading to get off the car, and the wealth management plate is also forced to increase transactions, hoping to increase profits. Due to the pressure on the growth of the parent bank's fees, and the financial industry value-added accounting newly refers to fees, wealth management income, as an important part of fees, will bear more contribution indicators. Wealth management subsidiaries are expected to increase volume and can make up for the reduction of non-wealth management institutions.

From the perspective of asset allocation, it is expected that wealth management funds will continue to increase bond allocation. The current weak credit demand still indicates that the social risk preference is still low. It is difficult to easily reverse the "asset scarcity" pattern in the bond market in the short term, and bond interest rates may still decline, and bonds still have allocation value.

Affected by manual interest supplements, there is an asset vacancy in the underlying allocation of deposits in wealth management. With the disappearance of the impact of seasonal returning to the table factors, and the expected continued fermentation of the impact of manual interest supplements, the deposits in the underlying allocation of wealth management are also affected, thus turning to the bond market as a substitute.Looking at the specific data, by the end of 2023, the scale of wealth management was 268 trillion yuan, of which 26.7% was invested in deposits and cash, amounting to 7.2 trillion yuan. Assuming that the proportion affected by manual interest subsidy rectification is between 20% and 40%, the affected deposit scale ranges from 1.4 trillion to 2.9 trillion yuan. To fill this asset gap, wealth management may continue to increase its allocation to short-term debt and other bonds.

The impact of this rectification on the revenue of listed banks without a wealth management subsidiary license is relatively small. Observing the data of listed banks without a wealth management license, the proportion of wealth management fees to revenue is mostly within 3%. Even if these banks are involved in accelerated rectification, the impact on the overall revenue is also small.

In fact, the pressure reduction notices from multiple provinces this time also conform to the regulatory attitude towards wealth management business, which is the continuation of the spirit of the asset management regulations (Article 13 of the asset management regulations stipulates: financial institutions whose main business does not include asset management business should establish asset management subsidiaries with independent legal status to carry out asset management business, and strengthen the risk isolation of legal persons. Those who do not have the conditions temporarily can establish specialized asset management business departments to carry out business). Subsequently, as small and medium-sized banks accelerate the pressure reduction of wealth management, the scale of wealth management is expected to further concentrate towards wealth management subsidiaries, which is beneficial for the increase of asset management income of licensed institutions.

From the perspective of the overall industry pattern, with the further improvement of wealth management concentration, a new batch of wealth management subsidiary licenses may be on the way, and banks with larger existing wealth management scales have more advantages. On the one hand, the pace of wealth management reduction for small banks is accelerating, and on the other hand, it may mean that the regulatory authorities will also accelerate the approval of new wealth management subsidiary licenses.

By the end of 2023, among the listed banks in the A-share market, there are 19 banks that have not obtained wealth management subsidiary licenses, and there are 8 banks with asset scale greater than 500 billion yuan, which are Shanghai Rural Commercial Bank, Chengdu Bank, Suzhou Bank, Guiyang Bank, Qilu Bank, Chongqing Bank, Changsha Bank, and Lanzhou Bank. Except for Shanghai Rural Commercial Bank, the wealth management scale is below 100 billion yuan; among them, the wealth management scale of Shanghai Rural Commercial Bank is 181.9 billion yuan, ranking first in the rural commercial bank system, and also higher than some city commercial banks.