Guaranteed failure

11 December 2017 By Pete Sweeney Follow @petesweeneypro

Bank regulators imposed a record $109 mln fine on a Guangdong lender for faking letters of guarantee to a corporate issuer. Stiff penalties might encourage better controls. A system-wide tech upgrade also would help. Improving China’s credit culture, however, will be a long slog.

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China's banking regulator said on Dec. 8 it had fined China Guangfa Bank 722 million yuan ($109 million) for providing faked guarantee documents to support corporate bond issues. It is the largest such fine handed down by the China Banking Regulatory Commission, equivalent to 8 percent of Guangfa's 2016 profit according to Reuters calculations.

The bonds were issued by Chinese phone maker Cosun and sold via an online platform run by Ant Financial, which is affiliated with e-commerce giant Alibaba Group.

The bonds defaulted in December 2016, at which point it was discovered that the guarantee documents had been faked by employees at Guangfa Bank's branch in Huizhou. The CBRC said the bank employees had colluded with Cosun.

The CBRC said the fraud involved 12 billion yuan and more than 10 financial institutions.

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