Recently, several banks have made adjustments to "spare change portfolio" financial products.
Bank of Communications (601328.SH) recently announced that it will reduce the daily maximum limit for quick redemption of two financial products to 10,000 yuan. Reporters from China Business News noticed that the aforementioned two products belong to the "spare change portfolio" category of financial products.
Interviews with journalists revealed that recently, many banks have adjusted their "spare change portfolio" services, mainly due to considerations of compliance risk and liquidity risk. The "spare change portfolio" is a combination product that breaks through the quick redemption limit, providing investors with tens of thousands or even hundreds of thousands of yuan in quick redemption limits per day, posing certain liquidity risks.
After the implementation of the cash management financial product policy at the end of 2022, the quick redemption limit was set at 10,000 yuan. This adjustment of the "spare change portfolio" business is also a further implementation of the relevant policy. It is worth noting that with the tightening of regulatory oversight and the decline in bond yields, the yield and scale of cash management financial products have been continuously declining this year. Data from Puyi Standards shows that as of September 25, the scale of cash management financial products in existence was 7.80 trillion yuan, which has contracted by 0.4 trillion yuan compared to the end of January.
Advertisement
Quick redemption limit reduction
Recently, Bank of Communications issued an announcement: "In order to optimize service functions and smoothly implement service transformation, our bank will update the 'Bank of Communications Demand Profit Customer Service Agreement' on October 19, 2024, updating the maximum limits for quick transfer (quick redemption) and payment transfer out."
Reporters found through relevant materials that Bank of Communications has reduced the daily maximum limit for quick redemption and payment transfer out of this financial product, specifically "the maximum quick redemption limit per natural day for a single product is 10,000 yuan. The total limit for a single investor's cumulative quick transfer out and independently initiated payment transfer transactions such as transfer remittances, card consumption, cash withdrawal, and online payment per natural day is 10,000 yuan."
Bank of Communications customer service staff told reporters that this adjustment mainly involves two financial products, "Demand Profit" and "Demand Wealth". Among them, the underlying assets of "Demand Profit" include 10 funds, with a past single-day maximum quick redemption limit of 100,000 yuan, and the underlying assets of "Demand Wealth" include 6 funds, with a past single-day maximum quick redemption limit of 60,000 yuan. Currently, the single-day maximum limit for both products has been changed to 10,000 yuan.
This is not the first adjustment for the aforementioned two "spare change portfolio" products. Bank of Communications previously issued an announcement stating that in order to optimize customer experience and smoothly implement service transformation, starting from March 16, 2024, the bank suspended the signing service of "Demand Profit" and "Demand Wealth" for new customers, and customers who have signed up can continue to use it normally.
This year, many banks have made adjustments to "spare change portfolio" financial products, including reducing quick redemption limits and closing intelligent transfer-in or transfer-out services.For instance, Ningbo Bank (002142.SZ) announced in March regarding the "Daily Treasure Functional Change Notice," stating that "the maximum quick redemption limit per customer per natural day is adjusted to 10,000 yuan, and the ordinary redemption function is not affected. For large redemption needs, you can use the ordinary redemption transaction, with the redemption funds arriving T+1."
"The intelligent transfer-in and transfer-out functions are canceled, and you can independently choose to sell the held Daily Treasure money market fund products."
Bank of China (601988.SH) announced this year that adjustments will be made to the automatic redemption and quick transfer functions of the Live Money Treasure service, including "suspending the opening of Live Money Treasure automatic redemption services for new customers" and "the quick transfer function will be adjusted from the original mode of supporting multiple products for quick redemption in one transaction to only supporting one product for quick redemption."
In recent years, the "spare change portfolio" has become popular mainly due to its low risk, strong liquidity, and balanced return characteristics. Zhang Qiaochu, a researcher at Puyi Standards, told reporters that after the implementation of policies related to cash management financial products at the end of 2022, adjustments were made to the quick redemption limit and redemption confirmation time for cash management financial products, which made it difficult for many investors to adapt at first. Subsequently, the "spare change portfolio" service introduced increased the quick redemption limit indirectly by increasing the number of underlying products, and some products can directly perform consumption transfer services without the need for redemption funds, enhancing the convenience of investment experience. After the "break-even tide," the overall market's risk preference for financial management is relatively low, and the "spare change portfolio" can well meet investors' preferences for low-risk and highly liquid products, while also offering higher returns than demand deposits, thus being widely welcomed by the market.
Zhang Qiaochu said that after various adjustment measures, the attractiveness of the "spare change portfolio" may be affected to a certain extent. In the short term, with various institutions reducing the quick redemption limit of the "spare change portfolio," restricting transfer limits, and canceling intelligent transfer-in and transfer-out functions, the advantages of the "spare change portfolio" products will be weakened to a certain extent, and the convenience of financial services will also decrease, which may lead to a decline in overall attractiveness to investors. For investors who are accustomed to using a higher quick redemption limit, they may actively invest in multiple cash management financial products to replace the previous "spare change portfolio" products.
Yang Haiping, a researcher at the Securities and Futures Research Institute of Central University of Finance and Economics, said: "The 'spare change portfolio' business is actually a portfolio investment of cash management financial products. The main reason for commercial banks to adjust the rules of the 'spare change portfolio' business is: first, to reduce the difficulty of liquidity management of financial products and reduce market fluctuations. Under the original business rules, the quick redemption limit per customer per day is large, and concentrated redemption poses a great challenge to the liquidity management of bank financial products, which may lead to risk accumulation or abnormal market fluctuations. Second, to meet compliance management requirements. The original spare change portfolio business rules may have issues with indirectly breaking through the quick redemption limit of cash products."
Liquidity Risk Hidden Dangers
The "Notice on Matters Related to the Standardization of Cash Management Financial Product Management," which was officially implemented at the end of 2022, proposed that commercial banks and wealth management companies should prudently set the limit for investors to obtain redemption amounts on the day of submitting a redemption application for cash management products, setting a limit of not more than 10,000 yuan per investor per product per sales channel per natural day.
To meet regulatory requirements and market demand, many banks have successively launched "spare change portfolio" financial products, which essentially increase the quick redemption limit by increasing the number of underlying products. For example, a certain joint-stock bank launched the "Spare Change+" service, with a daily maximum real-time available limit of 300,000 yuan, and "Live Money+" has a relatively daily maximum real-time available limit of 500,000 yuan. Among them, "Live Money+" is composed of 50 money funds, featuring low risk, high liquidity, and flexible withdrawal.
Du Juan, a senior researcher at Subei Commercial Bank, told reporters that banks launch "spare change portfolios" by investing customer's financial funds into a basket of cash management financial products, avoiding the single product's single-day redemption limit. Although this controls the liquidity risk of a single financial product, looking at a combination of multiple similar products, there is still a need to prevent risks and has attracted regulatory attention. The adjustment of "spare change portfolio" financial products by many banks this time is also mainly from the perspective of meeting regulatory requirements and preventing liquidity risks.
Zhang Qiaochu said that the recent adjustments to the "spare change portfolio" business by many banks are mainly due to considerations of compliance risk and liquidity risk. First, in terms of compliance, after the implementation of the relevant policies for cash management products at the end of 2022, the quick redemption limit was set at 10,000 yuan, and the "spare change portfolio" is actually a product service that integrates various cash management products, increasing the overall quick redemption limit of the product portfolio by increasing the number of underlying products. Institutions may adjust this business for certain compliance considerations. Second, in terms of liquidity, the "spare change portfolio," a combination product that breaks through the quick redemption limit, can provide investors with a quick redemption limit of hundreds of thousands or even millions of yuan per day, but such products also have significant liquidity risks. Once a sudden event leads to a large number of redemptions, a large amount of quick redemption limits may bring significant redemption pressure and liquidity pressure to financial institutions, and may even affect the overall operation and order of the financial market.As regulatory oversight tightens and bond yields decline, the scale of cash management financial products has been continuously shrinking this year. Data from Puyi Standard shows that as of September 25th, the scale of cash management financial products in existence was 7.80 trillion yuan, accounting for 26.16% of the total, which is a decrease of 0.4 trillion yuan compared to January this year, and a drop of 5.19 percentage points in the proportion of existence; the average annualized yield of cash management financial products in the past three months was 1.78%, a decrease of 0.51 percentage points compared to January.
Du Juan believes that cash management financial products mainly invest in low-risk assets such as deposits, large certificates of deposit, and bonds. Recently, the decline in deposit interest rates and the prohibition of "manual interest supplementation" have affected bond yields, which have also continued to decline, impacting the returns of cash management financial products.
Yang Haiping told reporters that the reason for the decline in the scale of cash management financial products this year is the decrease in their returns. Generally speaking, cash management financial products are mainly invested in deposits and bond assets, and the downward trend in the returns of the underlying assets has led to a decrease in the returns of cash management financial products, affecting the attractiveness of the products. Of course, adjustments such as the tightening of business rules for "spare change combinations" may also lead to a decrease in the attractiveness of cash management financial products, causing some customers to reconsider their investment directions.
It is worth noting that cash management financial products and money market funds are generally considered cash management tools for managing "liquid money". While the scale of cash management financial products is declining, money market funds have relatively increased. According to the public fund market data released by the China Securities Investment Fund Association, as of the end of June this year, the scale of money market funds was about 13.19 trillion yuan, an increase of about 1.91 trillion yuan compared to 11.28 trillion yuan at the end of 2023.
"There are three reasons: First, the reduction of deposit interest rates by banks highlights the advantages of financial products, so the overall scale of bank wealth management has recently increased, and some bank wealth management will invest in money market funds, increasing their scale; second, money market funds can be sold through diversified channels such as internet platforms, compared to bank cash management financial products which are mainly sold through bank channels, their platform covers a larger customer scale and has stronger sales performance; third, as cash management products, bank cash management financial products and money market funds have a certain substitution effect," Du Juan said.
Yang Haiping said that currently, commercial banks developing cash management financial products, on the one hand, should pay attention to communicating with investors, fully understanding the inevitability of the decline in the returns of cash management financial products; on the other hand, increase the convenience of product investment and consider adjusting fees appropriately.