June 20, 2018 / 11:04 AM / 4 months ago

Major Chinese lenders made illegal loans, Beijing's audit office says

BEIJING (Reuters) - Three of China’s largest lenders have made illegal loans to polluting industries and the property sector, and have exacerbated local government debt through loans to local financing vehicles, the National Audit Office said on Wednesday.

FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

Violations by Industrial and Commercial Bank of China Ltd (1398.HK)(601398.SS), Agricultural Bank of China Ltd (AgBank) (1288.HK)(601288.SS), and China CITIC Group Co., Ltd included providing loans, discounted bills and gold leases to unqualified companies, the audit authority said in a statement posted on its website.

They were also found to invest funds from their wealth management products into banks’ non-public issuance of preferred shares through the use of trust and other channels, among other illegal shadow banking activities, it said.

Based on the authority’s statement, the banks themselves apparently were not punished. More than 1,500 people at the lenders were fined or received administrative punishment that could include demotions and pay cuts, it said.

The lenders have corrected most of their problems, the audit office added.

The authority said it carried out an audit between July and September 2017 of the lenders’ 2016 assets and liabilities.

The office said it found the three lenders lacked accurate asset classification in credit risk management, and excessively lent to certain industries. Some loans or investment projects by those banks were at credit risk, but the office did not give details.

Lenders also inflated their size of deposits and reported “incorrect” loan figures to small and medium-sized companies, it added.

China is in its third year of a financial crackdown on shadow banking, looking to close loopholes in its financial system as debt risks mounted.

In a separate statement on Wednesday, the audit office said that it had uncovered illegal fund raising by five local and three regional governments, but it maintained debt risks were being effectively controlled.

Reporting by Yawen Chen and Ryan Woo; Editing by Richard Borsuk

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