A mobile app of Yu'ebao displayed on a cell phone screen Photo: CFP
The prime time for monetary funds backed by leading Internet companies, such as Alibaba's Yu'ebao, has come to an end, a senior banker said at a forum on Sunday.
"There should be no big growth opportunities for the third-party payment service providers in online funds sales, and I think Yu'ebao has already done its best," Wu Xiaoling, former deputy governor of the People's Bank of China, said at a financial forum held in Beijing.
Many third-party payment service providers like Alibaba's Alipay have overstepped their fields by offering mass market online investment products rather than focusing on payment service to a specific group of customers they were intended to, which may trigger tougher regulation, according to Wu.
"Internet finance symbolized by the rise of Yu'ebao cannot replace banks," Shi Yuzhu, founder of Internet game operator Giant Interactive Group and a former board member of China's Minsheng Banking Corp, also said at the same forum.
Their remarks reflected the central bank's tightening grip over the fast-growing monetary funds fueled by Internet financial products represented by Yu'ebao, the first of its kind launched by Alibaba in June 2013.
Propelled by online investment products, assets managed by monetary funds ballooned to 1.92 trillion yuan ($312 billion) by the end of May from a mere 564 billion yuan a year earlier, data from the Asset Management Association of China showed early this month.
To ward off potential liquidity risk, commercial banks have been instructed by the central bank since March to reduce interest payment as penalty if the monetary funds withdraw deposits from the banks ahead of the scheduled date, the 21st Century Business Herald reported on Friday citing industry insiders.
Under the previous practice, the monetary funds often made deposit agreements with commercial banks and negotiated for a preferential interest payment, to bring more liquidity to the banks. Commercial banks would make agreed interest payment to the funds even if the funds decided to withdraw money in advance.
Such deposit agreements reportedly accounted for more than 80 percent of many monetary funds' portfolio.
"Currently there has been no impact on Yu'ebao," Wang Dengfeng, a fund manager with Yu'ebao, told the Global Times, noting that majority of the banks that work with Yu'ebao have not changed the rules on agreed deposits.
But if all banks adopt the new rules, it would be difficult for the money market funds to manage assets given the large share of bank deposits in their portfolio investment, he said.
The lower investment return nowadays for online money market funds like Yu'ebao is neither the result of policy tightening nor market competition, he said, noting that the yield depends on the market liquidity.
Due to abundant liquidity in the interbank market this year, the yields of online wealth management funds have almost halved from the highest 8 percent last year to the current more than 4 percent.
If Yu'ebao's yield further drops, some investors may pull money out of Yu'ebao to invest in other high yield financial products such as bank's wealth management products and the stock market, Wang said.
Should the new rules on interest penalty be applied, the yields of the online monetary funds may be lower as they will be forced to invest more in lower interest payment treasuries and financial debts, Wang Rui, a research head at Morningstar China, an investment research firm, told the Global Times Sunday.
Yet, it will not hurt if the tightening rules bring down the return rates of the monetary funds, as the funds should focus on liquidity and fund security rather than high yields, she said.
About 60 percent of the 2,027 Yu'ebao investors said they would continue to invest in the fund despite a sliding return rate, according to an online poll by news portal qianzhan.com, on May 15.
