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September 14, 2016

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Home » Business » Finance

ICBC fined for not doing ‘rigid audit’

By Leng Cheng | September 14, 2016, Wednesday | Print Edition

THE Industrial and Commercial Bank of China, the country’s largest lender, was fined by the banking regulator for overlooking downpayments raised via property agencies as it continues to fight risks arising from leveraging financing in China’s heated property market.

ICBC’s Suzhou branch was fined 250,000 yuan (US$37,428) by the local bureau of the China Banking Regulatory Commission as the lender “failed to make a rigid audit on the source of property downpayment, in this case, financing from property agencies.”

It is the first time the CBRC has issued a fine of this kind.

The CBRC notice, released on its website yesterday, showed the decision had been made internally on August 4.

Downpayment — the initial amount that a home buyer has to pay before getting a mortgage from a bank — accounts for at least 30 percent of the total housing price in five big cities and 25 percent in other cities in China.

Market watchers argue that property agencies and other financial institutions providing home buyers with loans to enable them to raise enough funds is risky, as the lending pool that bypasses the traditional financial system would make “the actual leverage in mortgages higher than what bank data show”, and transfer the systematic risks to the banks.

“At the end of the day, it is a problem of banks managing risks,” Zhan, an analyst at China Bohai Bank, said. “Banks have to take on the bad debts if the grey loans go sour.”

In March the government said that downpayments raised via property agencies, small-loan firms and peer-to-peer sites would not be allowed.

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