19 Banks Fined for Alleged $3 Billion Pledged Loan Fraud

China’s top banking regulator handed out another big fine of 52.5 million (about $8.4 million) this year to industry players linked to a loan fraud case, as it tightens up scrutiny over institutions’ business practices to fend off risks.

Nineteen banks in the northwest province of Shaanxi and central province Henan were fined for their misconduct in a 19 billion yuan pledged loan fraud, the China Banking Regulatory Commission said on Friday.

Those fined included branches of large state lenders — the Industrial and Commercial Bank of China and the Postal Savings Bank of China — as well as smaller rural credit cooperatives. They granted loans to people who illegally used poor-purity gold as pledges, the banking regulator said. The case was uncovered and investigated in 2016.

One hundred and four executives and employees of the banks were punished with demotions or fines, according to the CBRC.

The case reflected the banks’ lack of internal controls and lax management of loan issuance and collateral, the commission said. The banks had failed to conduct adequate due diligence before the loan issuance, properly assess the value of the collateral and manage the risks, the CBRC said.

The banks pursued business expansion blindly without knowing their customers. They violated business rules and failed to set up internal risk controls and audit mechanisms, said the CBRC.

Thirty-five people have been arrested for the alleged loan fraud, the regulator said. Most of the suspects are linked to Henan-based gold miner Boyuan Mining Co., including company Chairman Zhao Faping. Caixin learned that some bank employees have also been handed over to judiciary departments for criminal investigations.

China’s top financial regulators have stepped up their crackdown on market wrongdoings since last year amid the central government’s broader efforts to rein in financial risks.

It is the third heavy penalty handed down by the banking regulator so far this year. Last week, the Postal Savings Bank and 11 other lenders were fined a combined 295 million yuan for illegal trading of 7.9 billion yuan of bank bills.

Earlier last month, Shanghai Pudong Development Bank was fined $72 million for falsifying loan deals and hiding non-performing assets.

In all of 2017, the CBRC imposed fines totaling 2.9 billion yuan on 1,877 banking institutions, according to official figures. The biggest penalty — 722 million yuan (more than $100 million) — was slapped on China Guangfa Bank for fabricating guarantee documents.

It also punished 1,547 industry employees — including banning 270 from the industry for years or up to a lifetime — and issued a flurry of regulations to try to wring out risks.

Guo Shuqing, the head of the banking regulator, has repeatedly warned lenders to root out fraud and other malpractice. In a statement in early January, the CBRC vowed to intensify its crackdown on lender misconduct this year, with a focus on interbank deals and shadow banking, warning that the country still faces “complicated and grave” potential financial risks.

Contact reporter Han Wei (weihan@Caixin.com)