China will punish eight banks, including its two biggest lenders, for making
improper loans used by two state companies to buy stocks and real estate in
defiance of official efforts to cool speculation, regulators said Monday.
The announcement reflected government efforts to clean up
China's scandal-plagued banks and slow real estate and stock market speculation
that leaders worry could spin out of control.
The banks will be fined and several bank managers reprimanded, the China
Banking Regulatory Commission said. It said one bank will be forced to suspend
"Banks must learn a lesson from this and improve management and stick to good
international practice of knowing their customers," the CBRC said in a
China's state-owned banking industry has suffered a string of scandals over
managers who embezzled money, took bribes to authorize improper loans or misused
their institutions' money.
In the latest cases, two major government companies, China Nuclear
Engineering & Construction Corp. and China Ocean Shipping Co., violated
lending conditions by investing loans in real estate and stocks, the bank
Banks hit by penalties include Industrial and Commercial Bank of China Ltd.
and the Bank of China Ltd., the country's biggest and second-biggest commercial
The regulator said bank managers failed to properly monitor lending but its
statement gave no indication that any were accused of criminal misconduct.
China Ocean Shipping, also known as COSCO, borrowed 2.7 billion yuan ($350
million) since June 2006 from six banks and used at least 2.4 billion yuan ($315
million) to invest in initial stock offerings, the agency said.
The loans came from the Shanghai branches of ICBC, Bank of China and mid-size
lenders China Merchants Bank Co., China Citic Bank Corp., Industrial Bank Co.
and Shenzhen Development Bank Co.
China Nuclear Engineering misused about 2.3 billion yuan ($300 million)
borrowed since 2001 from the Bank of Beijing Ltd. and the Beijing branch of the
Bank of Communications Ltd., the CBRC said.
The penalties came at a time when Beijing is trying to cool off surging
housing prices and a stock market boom by tightening controls on the use of
borrowed money for real estate and securities purchases.
"The commission believes these improper loans occurred because the banks
failed to perform due diligence before the loans and then failed to monitor
borrowers afterward," its statement said.
The heaviest penalties were imposed on China Merchants Bank.
Regulators confiscated an unspecified amount of profits from its lending and
fined the bank 5 million yuan ($650,000), the bank agency said. It said the
branch's senior managers were stripped of their professional certifications and
it was ordered to suspend commercial lending for six months.
The other banks were fined 500,000 yuan ($65,000), the statement said.
China Nuclear Engineering and COSCO also are to be penalized by the
government agency that oversees major state-owned companies, the banking agency