China’s audit agency launched a probe into bank lending amid concerns that some of the lending ended up in stock and property markets.
By Wen Xiu 04 September 2009
(Caijing.com.cn) China’s National Audit Office is investigating recent lending by major commercial banks, in an effort to trace the flow of loans issued in support of the government’s economic stimulus funds, a senior executive at a major bank told Caijing.
The investigation focuses on loans that might have been diverted to stock markets.
In November, China unveiled a 4-trillion-yuan stimulus package to revive an economy badly shaken by the global downturn. The stimulus plan was facilitated by a moderately loose monetary policy, which resulted in the 7.4 trillion yuan record lending in the first half of 2009.
Concerns from regulators were aroused after about 23 percent of total first-half new lending was extended in discounted bills financing.
The authorities now suspect that much of the money was improperly diverted from the real economy to speculative investments in real estate and stocks.
Discounted bills financing is a short-term lending practice allowing companies to raise cash by surrendering receivables at a discount. But once the bills are cashed, banks can no longer monitor the capital flow, providing opportunities for the cash to be invested elsewhere.
“Some capital from unidentified sources fled the stock market as soon as word of the investigation spread,” a senior banker told Caijing.
Unlike loans issued for specific projects, capital from discounted bills is harder to trace. However, people familiar with the NAO investigation said the agency intended to trace large accounts with securities firms and track the funds back to their sources.
“The National Audit Office has the right to extend investigations to enterprises. They can possibly dig things out if they’re determined and make the effort,” said a banker from a large bank, adding that concern over the probe was one reason why capital has quickly fled the stock market.
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China Auditors Take Close Look at Bank Lending
China’s audit agency launched a probe into bank lending amid concerns that some of the lending ended up in stock and property markets.
By Wen Xiu
04 September 2009
(Caijing.com.cn) China’s National Audit Office is investigating recent lending by major commercial banks, in an effort to trace the flow of loans issued in support of the government’s economic stimulus funds, a senior executive at a major bank told Caijing.
The investigation focuses on loans that might have been diverted to stock markets.
In November, China unveiled a 4-trillion-yuan stimulus package to revive an economy badly shaken by the global downturn. The stimulus plan was facilitated by a moderately loose monetary policy, which resulted in the 7.4 trillion yuan record lending in the first half of 2009.
Concerns from regulators were aroused after about 23 percent of total first-half new lending was extended in discounted bills financing.
The authorities now suspect that much of the money was improperly diverted from the real economy to speculative investments in real estate and stocks.
Discounted bills financing is a short-term lending practice allowing companies to raise cash by surrendering receivables at a discount. But once the bills are cashed, banks can no longer monitor the capital flow, providing opportunities for the cash to be invested elsewhere.
“Some capital from unidentified sources fled the stock market as soon as word of the investigation spread,” a senior banker told Caijing.
Unlike loans issued for specific projects, capital from discounted bills is harder to trace. However, people familiar with the NAO investigation said the agency intended to trace large accounts with securities firms and track the funds back to their sources.
“The National Audit Office has the right to extend investigations to enterprises. They can possibly dig things out if they’re determined and make the effort,” said a banker from a large bank, adding that concern over the probe was one reason why capital has quickly fled the stock market.
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