Sales of wealth management products by Chinese banks leapt 43 per cent in the first half of 2012 compared to the same period last year, according to media reports, adding to concerns over miselling to unsophisticated retail investors.

Sales of these products totaled 12.14 trillion yuan ($1.9 trillion) in January through June, said a report by CN Benefit, a wealth management consultant based in Chengdu, cited by Reuters.

Bank of China, China Merchants Bank, Industrial and Commercial Bank of China, and Huaxia Bank were top five in terms of issuer volume. But the report noted that the fastest growth occurred at small, city commercial banks.

CN Benefit's report showed that 52 per cent of all wealth management products invest in relatively safe bond and money market instruments. Due to increased regulatory restrictions, less than one percent of products are based on loans and corporate, the report said.

However, 34 per cent of products are classified as mixed, which means they could be partially based on loans or other illiquid investments.

Mismatch

Concern has centered around the potential maturity mismatch created by the short maturity of WMPs compared to the longer maturity of the loans that banks are using WMPs to finance, said the newswire. 

The report shows that 86 per cent of WMPs have maturity less than one year, while 58 per cent have tenors between one and three months and another 12 per cent have tenors between three and six months.

Nearly five per cent of products mature in less than one month, despite a rule issued by China's banking regulator last year forbidding products with maturities of 30 days or less.

Concerns that these wealth management products could create hidden risks in China's banking system are on the rise, as retail customers look for a higher yield above interest rates given from cash deposits.