Bank Regulation

China Steps Up Fines On Banks Hiding Bad Loans

The China Banking and Insurance Regulatory Commission (CBIRC) is issuing fines to banks at a record rate in an effort to combat increasing financial risk.

Bloomberg, citing research by UBS, reported the CBIRC has issued 4 billion yuan — or $585 million — in fines since Chairman Guo Shuqing took over as head of the government agency in the start of last year. Prior to the new chairman, the regulator issued a total of 1 billion yuan in fines in the previous 14 years, reported Bloomberg, citing data compiled by UBS Evidence Lab. The report noted under Guo it has averaged more than 110 fines per month, compared with 26 a month from 2003 through 2016.

Bloomberg found that a lot of the fines in recent weeks have been due to banks hiding bad loans. That, Jason Bedford, director of Asian financial research at UBS, said underscores the CBIRC’s focus on the existing stock debt held at banks. Under Guo the government agency has levied fines of as much as $110 million, forced the firings of bank executives and made public the violations on the part of the banks. The efforts mesh with President Xi Jinping’s plan to slash risky debt in the Chinese economy, noted Bloomberg. Bad loans in the banking industry increased to 183 billion yuan in the second quarter.  The report noted that earlier this year Guo told People’s Daily, the state-run newspaper, that there is a need in China to get rid of the so-called shadow banking sector and reduce the leverage among households in China.

According to an August report in Reuters, bad bank loans aren’t the only problem in China. Reuters reported back then that sixteen Chinese corporations, most of them private, have defaulted on 34 corporate bonds. The defaults are worth $5.5 billion this year, a trend that adds tension to the complex issue of accelerating business borrowing. Reuters compared the 2018 data to last year’s, which saw 30 defaults worth $3.81 billion for the entirety of 2017. Corporate bond defaults seem to be accelerating in China, with more than 40 percent of defaults this year occurring since early June. That rise is, in part, due to multiple missed payments from a single borrower. For instance, Wintime Energy Co., Ltd. missed four payments, reports said, while CEFC Shanghai International Group Ltd. has missed three since June.

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