Banking Regulator Uncovers $2.72 Trillion in Malfeasance Since March


The China Banking Regulatory Commission has uncovered a plethora of wrongdoing in the country’s financial system since incumbent chair Guo Shuqing took office in February 2017.

Guo Shuqing launched a crackdown on malfeasance in the banking sector shortly after taking up the top position at CBRC, as part of a broader drive by Beijing to contain leverage and risk in the Chinese financial system.

CBRC announced on Monday that it’s discovered 59,700 individual cases of wrongdoing since March, involving a total of 17.7 trillion yuan (approx. USD$2.72 trillion).

Major violations involved financial institutions engaging in “regulatory arbitrage” in order to dodge capital inadequacy or credit restrictions, and channel excessive lending to red-flagged sectors such as property, overcapacity industries and local government.

11,534 of the cases of wrongdoing involved industry rules and laws, 4,060 involved taking advantage of inconsistent regulations, 12,800 involved inappropriate business practices, while 31,300 were related to problems with corporate governance, including non-compliant investment activities and equity structures.

The regulator meted out fines worth a total of 2.9 billion to 1,877 banking institutions last year, with China Guangfa Bank incurring the heftiest punishment, a penalty of 722 million yuan (over USD$100 million) for fraud in relation to guarantee documents.

1,547 members of the Chinese banking sector received punishments, with 270 receiving multi-year or lifetime bans.

One source said to Caixin that CBRC is intent upon making “those who try to take advantage of regulatory loopholes unable to profit from such practices, and strictly punish those who violate the rules.”

According to sources CBRC’s regulatory crackdown is set to continue in 2018, focusing in particular on misconduct in relation to the interbank funding that is a key component of the Chinese shadow banking sector, as well as bankers’ acceptances.

Regulators are particularly concerned about the risk created by maturity mismatches, due to the copious use of short-term wealth management products by lenders to fund long-term projects or risk-fraught undertakings.