I previously posted the great discussion between Victor Shih and Carl Walter on the unorthodox lending practices of Chinese state-owned banks in the past and how, despite some initial will to change that, they were revived after the Lehman Brother collapse.
It was just like old times. For the sake of meeting loan targets and stimulating growth through massive investment projects, banks ended up lending to practically everyone who wanted money. That was how the massive credit and monetary expansion happened after the financial crisis. Many people could borrow massive amounts of money simply because they were well connected.
Unsurprisingly then, banks have been lending like crazy, with all sorts of weird and questionable lending practices. The National Audit Office has just investigated Industrial and Commercial Bank of China (ICBC) and Citic Bank, and found that they have violated rules while making some of those loans, and these practices are particularly common in regional branches. These absurd practices included:
Lending money for land acquisition purposes to companies that aren’t in real estate business; improper funding to real estate projects, with borrowers’ without sufficient capital or paper work not done properly; improper lending to local government financing vehicles (LGFVs); provide trade finance for companies that aren’t really in the business of trading. Auditing of the books for some banks’ subsidiaries was a mess, with off-balance sheet assets and liabilities, and occasionally with wrong financial statements. Some bank branches have poor risk management, with some of the money being lent has apparently beenstolen by borrowers, and asset qualities are not classified accurately…
I advise rethinking any notion that Chinese banks are fine.