China bans banks from selling commodities-linked products to retail buyers: Sources

China’s banking regulator has asked lenders to stop selling investment products linked to commodities futures to mom-and-pop buyers, three people with knowledge of the matter told Reuters, to curb investment losses amid volatile commodity prices.

It has also asked lenders to completely unwind their existing books for these products, which they manufacture and sell to individual investors, said the sources, who are involved in and have been briefed on the decision.

The China Banking and Insurance Regulatory Commission’s (CBIRC’s) order to exit these products was issued this year, two of the sources said, and has not been reported before.

“The risk contained in banks’ commodity-linked investments cannot be easily spotted by ordinary investors, neither can they bear it,” one of the sources said. “Banks also don’t have enough expertise to run such products properly.”

The directive is not yet public and the sources spoke on condition of anonymity. The CBIRC, China’s top banking watchdog, did not immediately reply to a Reuters email seeking comments.

The move comes as runaway commodity prices in both onshore and offshore markets have raised regulatory concerns about the risks of speculative bets, prompting China’s state planner and exchanges in recent weeks to take price-control measures.

The CBIRC wants to prevent losses like that incurred a year ago by Bank of China (BoC) on crude-oil linked investment products, the people added.

It has asked lenders, including Industrial and Commercial Bank of China (ICBC), to report “clean-up progress” on commodities-linked investment products on a monthly basis to regulators, two of the sources said.

The CBIRC has, however, not given a specific deadline to the banks for completely exiting their positions, they added.

The ICBC did not immediately reply to a request for comment.

While the total size of such products in the Chinese banking system is unknown, BoC’s $1.8 billion losses tied to just U.S. crude futures highlights the attractiveness of similar products for retail investors looking for higher returns.

Regulators are worried mom-and-pop investors may get burnt again by the recent big swings in commodity prices, driven by post-pandemic demand recovery, liquidity easing and speculative trading. Government watchdogs have urged Chinese industrial metal firms to maintain market order.

BoC’s losses last year had wiped out several thousands of such small accounts held by retail investors, ranging from college students to retired workers, prompting the CBIRC at the time to ask commercial banks to halt new sales of a wide range of investment products linked to commodity futures.

Given the recent price volatility, the ban on new sales has been widened to a full sector clean-up, covering products linked to commodities not specifically targeted before, such as gold, silver, platinum, palladium, natural gas and soy beans, the three sources said.

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