Jiangxi Bank Lent 200bn Yuan to Fraudulent Borrowers


Jiangxi Bank has sustained heavy losses as a result of fraudulent loans taken with the provincial lender by multiple companies, capsizing hopes that it would emerge as a regional banking powerhouse.

The Jiangxi Province Provincial Court has revealed that multiple companies used falsified information to defraud  Jiangxi Bank of nearly 2 billion yuan (approx. USD$290 million) in loans and bills of exchange, which translates into direct losses of 800 million yuan (approx. $116.2 million).

According to information made public by the provincial court, during the period from 2013 – 2015 a group of at least five listed companies based in the province used forged sales contracts and financial statements to fraudulently obtain loans and bills of exchange from Jiangxi Bank on multiple occasions

Some of these companies obtained as many as eight loans from Jiangxi Bank via fraudulent means, with many lacking any real operations or business transactions, as well as records of tax payment.

The bank’s annual reports reveal that total assets surged by 22.52% and 41.17% during the 2013- 2015 period, with growth led by loans, which grew by 14.73% and 45.9% respectively.

Non-performing loans also leaped during the same timeframe, rising by 40.96% year-on-year at the end of 2015 to reach 1.55 billion yuan.

Losses point to collusion between lender and local companies

The revelation has led to allegations that the provincial lender has been severely negligent in the performance of its inspection and risk-control measures.

While Jiangxi Bank may have established a thorough chain of inspection measures for the full lending process, one local insider told Beijing Business Today that there is definitely a “tacit understanding” between banks and enterprises, with lenders often “watering” loans to expand their scope, as well as succumbing to pressure from local government to make funds available to companies.

Ambitions to becoming provincial powerhouse could be capsized

After racking up rampant asset growth during the period when the fraudulent loans took place, Jiangxi Bank’s ambitions to becoming a lending powerhouse could well run aground due to the latest revelation of its losses.

Jiangxi Bank assumed its current title in December 2015, following a merger between Nanchang Bank and Dezhen Commercial Bank in Jiangxi province.

The bank’s ambitions to become a regional powerhouse received the support of the provincial government and party, who mandated the implementation a “three step” plan consisting of “consolidation (with other provincial banks), introduction of strategy and an initial public offering.”

Local observers point out that this plan has now run aground at its very outset, with no other major banks in the province, such as Jiujiang bank in the north of Jiangxi, willing to accept merger plans in the wake of the lending scandal.