Photographer: Qilai Shen/Bloomberg

Fresh Doubts Raised on China's Bad-Loan Data

  • Pudong Bank found to give illegal loans to hide NPLs
  • China NPL figures are widely believed to be underestimated

China’s bad-loan data, which analysts and investors have long regarded to be understated, was thrown into question again after the banking regulator uncovered faked reporting at a local lender.

Shanghai Pudong Development Bank Co., the nation’s ninth-largest lender, illegally lent 77.5 billion yuan ($12 billion) over many years to 1,493 shell companies to take over bad loans at its Chengdu branch, the China Banking Regulatory Commission said in a statement late Friday. The branch, which had reported zero bad loans, inflated its earnings and faked other operational data to improve performance and evade compliance, the CBRC found.

The regulator imposed a fine of 462 million yuan on the branch and said its senior executives will face prosecution. In a statement after the CBRC’s announcement, Shanghai-based Pudong Bank said it has booked the fines in its 2017 financial results and vowed to strengthen compliance and internal controls. 

Shares of Pudong Bank fell as much as 2.9 percent in Shanghai morning trading Monday, the biggest intraday drop since August.

“This is a well-organized fraud engineered by Pudong Bank’s Chengdu branch,” the CBRC said in the statement. “It involved a massive amount of money, used hidden schemes, and had profoundly damaging implications.”

Raises Doubts

The case raised fresh doubts about the accuracy of financial and economic data reported by Chinese companies and even local authorities. The province of Inner Mongolia this month joined neighboring Liaoning in admitting inflating key economic figures, prompting the head of China’s statistics bureau to verify local accounts. President Xi Jinping said earlier that officials must be “frank and forthright” when delivering their reports.

CBRC Chairman Guo Shuqing, almost one year into the job, has launched a campaign to root out malpractice and strengthen controls over the banking industry amid surging risks from poor corporate governance, violation of lending policies, and cross-holding of financial products.

Chinese lenders have been grappling with a growing mountain of bad debt after flooding the financial system with cheap credit for years to prop up economic growth. Their official non-performing loan ratio stood unchanged at 1.74 percent as of Sept. 30, according to CBRC data. By contrast, CLSA Ltd. estimated the NPL ratio at 15 percent to 19 percent in 2015.

— With assistance by Jun Luo

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