Something interesting is happening in Chinese bank regulation: it is getting a lot tougher.
New research by UBS, led by analyst Jason Bedford, shows that the amount of bank fines issued under the new head of the regulator, Guo Shuqing at the China Bank and Insurance Regulatory Commission, last year showed a 14-fold increase over 2017, and in fact amount to almost six times the total of the previous 14 years put together.
Genuinely stinging penalties are being awarded for the first time in years.
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Jason Bedford, |
Guangfa Bank, an unlisted institution whose major shareholder is China Life, was fined Rmb722 million ($107 million) last year, equivalent to 7.1% of the bank’s full-year net profit for 2017. Pudong Shanghai Bank has received a range of fines approaching Rmb2 billion in total.
But what impresses Bedford is not so much the scale of fines as the nature of the overall approach.
“Lots of people use the words ‘deleveraging’ and ‘credit tightening’ synonymously,” he says. “But they’re not the same thing.
“Some regulators just slap loan quota on, but the problem with that is it doesn’t differentiate between good and bad banks, those that have prudent policies and those that have no discipline and lend to insolvent steel companies.”
