China fines 8 banks for illicit stock loans

China fines 8 banks for illicit stock loans

Crackdown points to Beijing's worries over financial risks from market boom

BEIJING - CHINA'S banking regulator said yesterday that it had punished eight bank branches for lending money that was illicitly used for stock market and property sector investments. This move highlights official concerns over the financial risks from the stock market boom. In a statement on its website, the China Banking Regulatory Commission (CBRC) said it had uncovered two cases, amounting to about five billion yuan (S$1 billion) in irregularities, during an investigation that began early this year. The branches involved belonged to Bank of Communications, China Merchants Bank, Industrial & Commercial Bank of China, Bank of China, Industrial Bank, China Citic Bank, Bank of Beijing and Shenzhen Development Bank, the regulator said. 'The announcement indicates that the government is still worried about a possible overheated stock market as the index continues to rise quickly above the 4,000-point level,' said Shanghai Securities senior analyst Zheng Weigang. The CBRC said that in one case, China Nuclear Engineering & Construction had borrowed 2.4 billion yuan from the Bank of Communications and the Bank of Beijing since 2001, in the name of working capital. It misused about 87 per cent of the loans for property and stock investment, the regulator said, concluding that the two bank branches had not carried out sufficient due diligence. It punished 18 executives involved in the lending with penalties that included warnings and fines. In another case, China Shipping (Group) borrowed 2.7 billion yuan from six Shanghai bank branches in the name of working capital from June last year, but the group used at least 2.4 billion yuan of the loan to speculate on stocks, the watchdog said. The CBRC fined the Dongdaming branch of China Merchants Bank 1.69 million yuan and banned it from corporate lending for half a year; the other five were fined up to 500,000 yuan each. It also said that the State- owned Assets Supervision and Administration Commission would punish China Nuclear and China Shipping. In its statement, the banking regulator stressed that the cases were isolated and did not reflect widespread illicit lending in the banking sector for the purpose of punting on stocks, echoing comments made by its chairman Liu Mingkang, earlier this month. The Shanghai Composite Index closed 2.92 per cent higher yesterday at 4,253.35, extending a rebound after the index fell sharply late last month on the announcement of a tripling of the stamp tax. 'The authorities are expected to continue using mild steps such as the announcements of penalties for irregularities to remind the market of official concerns, but they are unlikely to take another big step such as a tax change to cool the market,' said Mr Zheng. REUTERS