Bank of Jinzhou auditors resign citing loan inconsistencies
- The development comes after Chinese authorities took over Baoshang Bank last month, citing its ‘severe credit risks’
Bank of Jinzhou said its auditors resigned, sending some of its debt securities plunging and reigniting investor concerns about the riskiness of China’s smaller lenders.
Ernst & Young Hua Ming LLP and Ernst & Young said in a resignation letter to the bank that there are indications that some loans to institutional customers weren’t used in ways consistent with the purposes stated in documents, Bank of Jinzhou said in a statement late Friday. The lender’s shares are suspended from trading in Hong Kong.
China’s small- and mid-size lenders have been under increasing scrutiny after regulators last month seized control of Baoshang Bank, citing serious credit risks. The central bank said on Sunday that the move was an isolated case triggered by misappropriation of funds by Baoshang’s largest shareholder, but concerns linger about the health of the nation’s small banks.
Bank of Jinzhou’s loss-absorbing debt instruments, known as AT1 bonds, fell to a record low on Monday morning. Trading in its Hong Kong shares has been suspended since April 1 after publication of the financial results was delayed. A Bloomberg index of Hong Kong-listed Chinese banks fell 0.8 per cent as of 11:31am on Monday compared with a 0.5 per cent decline in the Shanghai Composite Index.
EY, which was hired in May 2018 to review Bank of Jinzhou’s accounts for the latest financial year, had asked for additional documents to demonstrate the clients’ ability to service the loans, the lender said Friday. While it had been working with EY to provide the information, the two sides had been unable to reach a consensus on how to resolve the concerns or confirm a timetable for publishing the delayed 2018 results, the bank said.
Apart from what is already disclosed, EY’s resignation letter said there’s nothing else the firm considers should be flagged to shareholders or creditors, Bank of Jinzhou said in Friday’s statement. Crowe (HK) CPA was named as the bank’s new auditor and Bank of Jinzhou said it expects to publish the 2018 results by the end of August.
