China’s Biggest Bank Suspends Retail Products in Commodities

China’s largest lender, the Industrial and Commercial Bank of China, halted sales of more products that let retail investors speculate on fluctuations in commodities after the unprecedented crash in crude oil burnt many.

The lender will temporarily suspend the opening of new positions in products linked to crude oil, soybeans, and natural gas. The bank said that the suspension is to protect clients’ interests because of the recent volatility in commodities. Its website says these commodities are linked to global futures contracts. 

The crude oil goods are linked to WTI traded on the CME and Brent sold on ICE. Meanwhile, the natural gas is linked to the NYMEX (New York Mercantile Exchange) futures contract. 

ICBC’s copper commodity showed links to the futures contract on COMEX and soybean products to the contract traded on the CBOT (Chicago Board of Trade).

Investors already holding ICBC’s commodity-linked retail products will not be able to add to their positions from Tuesday. Still, existing posts can be traded as standard, the bank said on its website on Monday.

This year, oil prices have dived due to economic damage that the Coronavirus outbreak caused. Besides, a price war triggered by Saudi Arabia and Russia, and a shortage of storage for excess oil widely influenced oil. Moreover, it caused steep falls in many oil-linked products.

Bank of China lost more than $1 billion

Earlier, rival Bank of China, which sold a product linked to oil, lost more than $1 billion for clients after falling below zero. It suggested that there is a hidden pocket of risk in the system. 

Official figures show there are about $265 million (1.88 billion yuan) in commodity-related investment vehicles. It makes up less than 0.01% of China’s wealth product market.

The collapse of the Bank of China’s crude oil caused turmoil among investors. They have taken to the internet to protest the lender’s handling of the agreement rollover. Investors in similar products other banks offered, mostly avoided that type of loss because of different designs. 

China’s regulator has advised commercial banks to suspend sales of a range of wealth management products since they might result in unlimited investor losses. 

ICBC informed retail investors that they could waste all their investments and cash deposits in the commodity-linked products.

According to one commodity source in China, the debate in the country is about whether those products were suitable for the retail market. Commodities are a precarious investment, as oil proved last week.

ICBC said in its statement that the actions would not impact the trading of existing positions.