ICBC, BOC, and Citic extended loans to unqualified companies.
Reuters reports that a number of China’s largest lenders violated banking regulations when they extended loans to polluting industries and exacerbated local government debt through loans to local financing vehicles, prompting the regulator to impose fines and administrative punishment to over 1,500 employees.
The National Audit Office unveiled violations by the Industrial and Commercial Bank of China Ltd, Agricultural Bank of China Ltd, and China CITIC Group Co. who extended loans, discounted bills and gold leases to unqualified companies and invested funds from wealth management products into banks’ non-public issuance of preferred shares through the use of trust and other channels, amongst other illegal shadow banking activities.
The auditor also revealed in its audit that the three lenders lacked accurate asset classification in credit risk management, and excessively lent to certain industries which may have carried credit risk.
A report by UBS found that Chinese banks were able to weather through the squeeze of interbank borrowing by turning to negotiable certificates of deposit (NCD), effectively insulating them from the severest downturn of shadow banking crackdown.
NCDs issued by banks grew by $235b (1.5t yuan) in 2017, offsetting the 1.3t yuan decline in interbank borrowing which might help explain why the credit tightening that started in early 2017 hasn’t proved any more painful for the banking sector, UBS added.
Here’s more from Reuters:
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