China's banks see jump in fines under chief regulator Guo - UBS

[BEIJING] Fines levied by China's banking regulator have surged since Guo Shuqing became its head in February 2017, rising nearly six-fold from the cumulative fines levied over the previous 14 years, UBS said in a report.

The exponential increase in fines highlights a much stricter level of enforcement of regulations in the banking sector as Beijing seeks to fend off systematic financial risks.

Analysis of recent fines shows that at least 65 percent of them have been issued in relation to hiding non-performing loans (NPLs), according to the report dated August 30.

The closer regulatory scrutiny will deter future efforts to understate NPLs, leading to a surge in NPL recognition, it said.

The effort is "part and parcel of state-centered efforts at state-owned enterprise reform and the de-leveraging campaign and is aimed at dissuading banks from extend and pretend type activities to keep credit lines open to defaulted companies," UBS said.

The China Banking and Insurance Regulatory Commission did not immediately respond to an emailed request for comment.

Bad loans spiked 183 billion yuan (S$36.6 billion) for the April-June period, the biggest quarterly jump since the regulator began publishing data in 2003.

The NPL ratio for the banking sector was 1.86 percent at end-June, data from the regulator shows, the highest since 2009.

China's big five state banks account for only 10 per cent of total fines issued due to their tighter internal controls, the report said, meaning that smaller lenders are most impacted by the regulatory crackdown.

In December, the regulator imposed its biggest ever penalty on unlisted China Guangfa Bank Co totalling 722 million yuan  for providing illegal guarantees. That was equivalent to about 8 per cent of Guangfa Bank's 2016 profit.

REUTERS