Banking Regulator Issues 289 Fines in February, Focuses on Illicit Real Estate Loans

China’s banking regulator is keeping up the pressure on domestic lenders, with analysts expecting it to focus on reining in illicit loans to the real estate sector.

The Communist Party-run International Financial News (国际金融报) reports that as of 22 February the various branches of the China Banking Regulatory Commission (CBRC) have issued 289 fines worth a total of 107 million yuan (approx. USD$16.88).

The launch of a crackdown on the banking sector by CBRC last year saw it issue a record breaking 3,452 fines to misbehaving lenders in 2017.

The regulator has kept up the pressure on Chinese banks since the start of the new year, issuing a total of 372 fines during the period from 1 January to 11 February.

One of the main reasons for the large number of fines issued since the start of 2018 is the arrival of the seasonal peak in lending by banks during the first two months of the year, just prior to China’s lunar new year.

According to International Financial News the focus of the regulatory penalties issued this month has been illicit lending for real estate investment purposes – a “heavy disaster zone” which local authorities have been striving to stymie since the second half of last year.

On 13 February the Tianjin branch of CBRC issued the Tianjin Binhai Jiangzhun Village Bank with a fine of 200,000 yuan for the illicit provision of consumer loans to fund home purchases.

CBRC has also placed the Zhengzhou branch of northern China’s ZY Bank under investigation this month, for permitting the use of consumer loans to make the initial down payments on real estate purchases.

While last year the banking regulator focused on infractions involving interbank loans and wealth management products, Zhao Yarui (赵亚蕊), a senior research with the Bank of Communications Financial Research Centre, said to International Financial News that this year the emphasis would be on reining in illicit lending to the real estate sector.

“Over the past two years, the real-estate sector has still suffered from significant risk and hidden peril,” said Zhao.

“On the one hand over the past two years real estate prices in some areas have risen considerably, creating a definite bubble.

“On the other hand, some real estate companies have resorted to multiple methods to increasing their leverage, creating definite financial risk.

“In order to effectively rein in the illicit behaviour of the real estate sector and companies as well as real estate purchasers, regulatory authorities are adopting multiple methods to further standardise and continually improve regulatory measures, which will effectively prevent risk in relation to the real estate sector.”

In addition to illicit financing of real estate transactions, Zhao said that banking regulators would focus their attention on the proper implementation of the “three inspections” (三查) for loans by banks.

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