China’s Postal Savings Bank fined US$80 million for role in Guangfa fraud scandal

3. January 2018.

Postal Savings Bank of China, the country’s largest bank in terms of branch numbers, has been fined 521 million yuan (US$80 million) by the country’s banking regulator over its role in a scandal involving fake guarantees for bonds that has engulfed regional lender Guangfa Bank.

Postal Bank said in a filing to the Hong Kong stock exchange on Monday that the Beijing office of the China Banking Regulatory Commission (CBRC) had on December 29 ordered it to forfeit proceeds of 260 million yuan from loans it made to Guangfa and to pay a fine of the same amount plus an additional 500,000 yuan for non-compliance with lending rules and management standards. The total payment is 521 million yuan.

The CBRC has now fined 13 financial institutions, including Postal Bank, a total of 1.34 billion yuan over their roles in lending to Guangfa, which became involved in a fraud scandal when two bonds worth a combined 1 billion yuan issued by phone maker Cosun Group went into default on December 20, 2016.

When banks sought compensation for investors in the bonds from Zheshang Property and Casualty Insurance, which had provided insurance coverage for the debt, they discovered that the insurer had been issued fake letters of guarantee by a Guangfa branch in Huizhou city. The fraudulent documents had been created using counterfeit corporate seals made by branch staff.

Guangfa, the dominant bank in the southern city of Guangzhou, also tried to channel money to cover its mounting non-performing assets and operational losses, in a case that involved as much as 12 billion yuan.

China’s regulator slaps nation’s biggest fine on Guangfa Bank for fraud, and for covering it up

Last month, Guangfa was fined 722 million yuan – the biggest penalty ever handed down by the banking regulator.

Postal Bank, one of the 13 financial institutions that had supplied funds to Guangfa, said it made four investments totalling 2.2 billion yuan in October 2014.

It said it would further strengthen risk management and controls, but believed the fine and its exposure to Guangfa would not have any material adverse impact on its business and financial position, according to the filing.

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