FINANCIAL SERVICES | Staff Reporter, Hong Kong

Regulators calls on Chinese banks to review opaque lending rules

It singled out an unnamed Chinese lender that engaged in share pledging.

Bloomberg reports that regulators in Hong Kong have urged Mainland financial institutions against carrying out complex lending transactions that makes it difficult to carry out risk assessments.

Also read: Close Chinese ties raise Hong Kong banks' compliance risk

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) cited in a joint statement an unnamed Chinese bank that obtained a credit facility from the bank and made a large investment into a private fund whose sole purpose was to provide a loan to a special purpose vehicle. The bank subsidiary then provided loans to other public companies in exchange for company stock that was “of doubtful quality” in a practice known as share pledging.

“The findings from the coordinated inspections are illustrative of complex structures which appear to have been adopted by other Mainland financial institutions in Hong Kong,” the statement said.

The move comes after the securities regulator cracked down on licensed money managers disguising margin loans as investments which increases balance sheet risks of the involved firms.

Financial institutions should review such set-ups urgently, SFC and HKMA urged, adding that they are in close coordination with regulators from the Mainland.

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