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Banks caught breaking rules

By Chen Yang (Global Times)

08:00, June 04, 2012

The State-owned Assets Supervision and Administration Commission (SASAC) said over the weekend that it will increase supervision on State-owned enterprises (SOEs), after three big banks were found to have violated several financial regulations in their lending and other operations.

Subsidiaries of Industrial and Commercial Bank of China (ICBC), China Citic Bank and China Merchants Bank acted against rules in providing credit services, including granting loans to unqualified property projects, land development organizations and local government financing vehicles (LGFVs), as well as providing bill discounting services to falsified trade contracts, the National Audit Office (NAO) said in a statement Friday.

The banks' financial management was chaotic, and some of their loans were misused by their clients, the audit office noted.

The SASAC, China's SOE watchdog, said Saturday that it will increase supervision on the SOEs in terms of financial management and risk control.

The loans issued in violation of rules by ICBC, Citic Bank and China Merchants Bank amounted to 18.86 billion yuan ($2.96 billion) between 2004 and 2010, according to the NAO.

"Commercial banks' loans increased significantly in 2010 as part of the government's stimulus package to combat the effects of the global financial crisis," Zhao Xijun, deputy director of the School of Finance at Renmin University of China, told the Global Times yesterday. "However, banks' management skills did not improve in line with the explosive credit growth."

"The volume of improper lending was still small compared with the 7.95 trillion yuan-denominated loans issued by Chinese banks in 2010, so the problem is manageable," he said.

"But NAO's move signals China's effort to further regulate the finance industry and reduce risks in the banking system."

"Despite Chinese authorities' increasingly strict regulations on lending, some branches were still attracted by high returns on investment in the property sector and violated rules," Li Zhanjun, a senior researcher with Shanghai-based E-house China R&D Institute, told the Global Times yesterday.

The local banks have offered loans to unqualified developers and homebuyers, according to Li.

ICBC and Citic Bank carried out corrective action by setting up special teams to improve their supervisory capabilities, the NAO said.

"As of March, 93 percent of violations at ICBC and 91 percent of violations at Citic Bank had been rectified," Lü Jinsong, an official with the NAO, said in the statement.

China Merchants Bank admitted the problems uncovered by the NAO, and said most of the stated flaws have been rectified and a large percentage of improper loans have been recovered, according to a company statement released by the bank late Thursday.

The NAO also audited more than 10 central government-administrated SOEs in the energy, steel and telecommunications sectors including PetroChina and China Telecom, and said a total of 87 relevant officials have been punished.

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