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Banking & Finance

China’s top consumer credit firm fined US$1.37 million for malpractice, executives fined, blacklisted

Bank of Beijing Consumer Finance charged with running unauthorised businesses, filing false documents

PUBLISHED : Monday, 04 September, 2017, 10:35pm
UPDATED : Monday, 04 September, 2017, 10:43pm

China’s first consumer credit company has become the latest financial firm to be hit by scandal after the banking regulator fined it for malpractice, and handed out individual punishments to its four executives.

Bank of Beijing Consumer Finance Company, which was established in 2010 with the hope of finding a business model for consumer credit in China, was fined nine million yuan (US$1.37 million) for “seriously violating prudent operating principles”, including running unauthorised businesses, filing false documents and hiding important facts from the regulator, the Beijing branch of the China Banking Regulatory Commission said in a statement over the weekend.

The executives punished were Song Wenchang and Gu Tao, who were fined 500,000 yuan and 200,000 yuan, respectively; and Yin Zheng and Yuan Yaochang who were barred from working in China’s banking industry for 12 years and two years, respectively.

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The regulator did not provide details of their specific wrongdoings or give their job titles. When the Post called Yuan on his mobile phone, he denied any knowledge of the punishment and turned off his handset. All other calls to the Beijing-based firm went unanswered.

“The biggest difficulty for consumer finance in China is the lack of credit records,” Felix Yang, an analyst from consultancy Kapronasia, wrote in a report.

More than 900 million Chinese, or 65 per cent of the population, have no credit records, compared to just 11 per cent in the US, he said.

“The development of a credit rating system in China has been slow. As a result, many players in consumer finance are running with few risk controls,” Yang wrote.

“They may look fine while the market is growing, but when their business expands to a certain level, the accumulated risk will be a huge concern.”

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As Bank of Beijing Consumer Finance, which has registered capital of 850 million yuan, is not required to release annual figures, its financial situation cannot be fully assessed.

However, Bank of Beijing – its biggest shareholder with a 35 per cent stake – said in its 2016 annual report that it booked a loss of 476 million yuan from its holdings in the consumer finance firm for the whole of last year.

Bank of Beijing Consumer Finance, in which Spanish lender Banco Santander holds a 20 per cent stake, was once lauded as a model business in China. By providing collateral-free loans to pay for such things as home appliances and outbound travel it encouraged consumer spending, which is exactly what the government wanted as it sought to rebalance the economy away from fixed-asset investments. When Banco Santander became a major shareholder in 2014, the signing ceremony was witnessed by Chinese Premier Li Keqiang.

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Despite its once elevated status, the announcement made over the weekend was not the first time Bank of Beijing Consumer Finance had been taken to task by the regulator. In November 2015, it was fined 1.5 million yuan for “serious problems in loan management with rampant misuse of personal credit” and a “serious mismatch between its real asset quality and the reported quality”.

Problems aside, China’s consumer credit market still has huge potential for growth. The country’s total household debt is currently only about 40 per cent of GDP, compared to about 90 per cent in most developed economies.