China’s banking regulator has penalised the Chengdu branch of the Shanghai Pudong Development Bank for providing 77.5 billion yuan (USD$12.14 billion) in loans to local shell companies in order to hide dud assets.
According to the Sichuan province branch of the China Banking Regulatory Commission, Shanghai Pudong’s Chengdu branch extended 77.5 billion yuan in loans to 1,493 shell companies, in order obtain capital for the purpose of concealing its non-performing loans.
The regulator said that Shanghai Pudong also engaged in lending, interbank activities, wealth management product and other operations in breach of regulations, by means of methods including forgery and the provision of approvals beyond its authorised remit.
CBRC’s Sichuan branch has issued the bank with a 462 million yuan fine ($72.33 million) and placed life-time bans on the former head of the Chengdu branch, two of the vice heads, one departmental executive and one branch head engaging in work in the Chinese banking sector.
Sichuan CBRC has also transferred the case to judicial authorities for handling, and launched investigations into senior executives at Shanghai Pudong Development Bank’s head office.
“This is an organised case of fraudulence involving huge sums of money in which the Chengdu branch of the Shanghai Pudong Development Bank played the main guiding role,” said the banking regulator in an official statement. “It is appalling in nature and has deep lessons for us.”
According to the regulator the case highlighted a number of problems with the Chengdu branch including a severe lack of effective internal controls and a want of compliance awareness.
“[The bank] engaged in the one-sided pursuit of excessively rapid growth in the scope of its operations…adopting inappropriate methods including falsification, forgery and the concoction of performance results; the dressing up of performance reports and false profit increases.
“In order to achieve the goal of dodging the authorisation restrictions of the head bank and avoiding regulation and supervision, the branch bank…used superficial compliance to conceal major breaches of regulations.
“Additionally, the case also reveals that problems of the head branch of the Shanghai Pudong Development Bank with respect to long-term irregularities of branch banks, such as zero non-performing loans, including failed inspections, inappropriate assessment and incentive mechanisms, lack of enforcement of the rotating position system, and insufficient focus on risk warnings of regulators.”