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Three Major Chinese Financial Institutions Found To Provide Illegal Loans

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China’s National Audit Office has found three major financial institutions illegally provided loans to unqualified industries and local governments, failing to put in place proper risk management and controls, according to its official website.

The audit focuses on business, corporate governance, risk control and anti-corruption on three financial institutions including Industrial and Commercial Bank of China (ICBC) Ltd., Agricultural Bank of China Ltd, and CITIC Group Corporation Ltd.

In terms of business operations, the three companies were found to illegally extend loans to local government financing platforms, or highly polluted industries, or unqualified real estate companies. They were also found to invest funds from their wealth management products into banks’ non-public issuance of preferred shares through the use of trust and other channels, something the Chinese regulators have been cracking down.

For example, Agricultural Bank of China provided a total of RMB9.64 billion (US$1.48 billion) financing to unqualified property developers. CITIC Group provided RMB20.5 billion (US$3.16 billion) loan illegally to local government financing platforms, and RMB21.1 billion (US$3.25 billion) to unqualified property development projects.

On risk management and control, the institutions were found to improperly classify their credit risks, over extended credits, and some of their overseas branches lacking effective currency risk controls.

For example, 11 overseas branches of ICBC did not implement effective currency risk measures, resulting in US$41 million of non-performing assets.

Four of CITIC’s subsidiaries did not in place measures to manage pledges and fixed assets, causing RMB561 million (US$86 million) assets at risk.

A branch of CITIC Bank failed to implement effective control on its borrower, risking its RMB1.81 billion (US$278.68 million) loan.


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