Summary of Key Points
Recently, the National Financial Regulatory Administration has issued a series of heavy fines to multiple banks, including large state-owned banks, joint-stock banks, and small and medium-sized institutions. The main issues identified include the improper setting of performance indicators (such as targeted deposit targets), the inflating of deposit and loan volumes, and the practice of credit activities that merely circulate within the banking system (for example, using loans to create deposits). The underlying reason is that, amidst declining deposit interest rates and weak loan demand, banks continue to be obsessed with achieving large volumes, attempting to maintain their performance through manipulative financial tactics. Regulatory authorities are using these strict penalties to guide the industry away from focusing on volume and towards emphasizing quality, abandoning competitive expansion for the sake of serving the real economy.
I. Concentrated Fines: Banks Targeted for Violations
Since the beginning of this year, at least ten banks have been fined for violating performance assessment regulations or inflating their financial results. The common violations fall into three categories:
1. Improper Performance Indicators: For instance, Yichun Rural Commercial Bank, Yichun Branch of the Agricultural Bank of China, and Shengzhou Rural Commercial Bank in Zhejiang were all penalized for setting improper deposit targets. In simple terms, banks set rigid goals for their staff, such as requiring a certain amount of deposits to be acquired by the end of the month, which sometimes leads to unconventional methods being employed.
2. Inflating Deposit and Loan Volumes: For example, the Changchun Branch of the Industrial and Commercial Bank of China inflated its deposit and loan figures by issuing loans at the end of the month. The company would receive the loan, immediately deposit it back into the bank, thereby increasing both figures, only to recall the loan a few days later—without any actual business activity occurring. The Zhengzhou Branch of Bohai Bank went even further, using deposit certificates with no real purpose as collateral for loans and issuing invoices on a rolling basis to inflate its volume.
3. Credit Activities That Circulate Within the System: A typical example is the practice of “using loans to create deposits.” Banks would lend money to companies, which then deposited it back into the bank, effectively moving the funds within the banking system without contributing to the real economy. Guangxi Beibu Gulf Bank was fined for this behavior, as the funds did not go towards production or business activities, resulting in a waste of financial resources.
II. Heavy Pressure on Banks: Why Do They Take Risks?
Banks dare to violate regulations due to pressure on both ends:
- Deposits: As deposit interest rates continue to decline, customers move their money to financial products and funds, making it increasingly difficult for banks to attract new deposits. In July, RMB deposits increased by only 30 billion yuan, a year-on-year decrease of 470 billion yuan, reflecting the severe challenge of attracting deposits.
- Loans: Loan demand has been slow to recover this year, with both businesses and individuals showing little willingness to borrow. New loans in July decreased by 340 billion yuan, reaching the lowest level on record. Without being able to lend effectively, banks' interest income declines. To maintain their appearance of growth, they resort to inflating their financial figures.
- Inertia of Old Thinking: In the past, banks could generate profits through expansion; performance evaluations focused solely on deposit and loan volumes. This ingrained focus on volume makes it difficult for banks to change their practices quickly, leading to employees engaging in fraudulent activities to meet targets.
III. Serious Consequences of Violations
These violations are not trivial:
1. Misleading Regulators and the Market: Inflated deposit and loan figures can lead regulators to misinterpret the health of the economy, as it appears that more funds are circulating when in reality they are not entering the real economy.
2. Waste of Financial Resources: Funds that could support business production and personal consumption remain idle in bank accounts, reducing the efficiency of capital utilization.
3. Violation of Regulatory Rules: Such practices have long been prohibited by authorities. For example, in 2021, it was stipulated that targeted deposit targets cannot be set, and in 2018, using loans to create deposits was banned. Violators face fines ranging from hundreds of thousands to millions of yuan, as well as warnings and potential career consequences for responsible individuals.
IV. A Clear Regulatory Signal: Moving from Volume to Quality
Regulators are sending a clear message: they want banks to abandon their obsession with volume and prioritize quality and effectiveness:
- Recent Regulatory Actions: This year, there have been multiple calls for slowing loan growth while improving the quality of loans. Pan Gongsheng, the governor of the People's Bank of China, has stated that this will become the new norm. Xie Guangqi, the director of the Monetary Policy Department, also emphasized that a single loan indicator cannot reflect the true state of financing. The Tianjin Regulatory Authority has specifically highlighted the need to crack down on credit activities that merely circulate within the banking system and promote loans to small and micro-enterprises.
- Future of the Industry: Banks can no longer rely on manipulative financial tactics. Future evaluations will likely consider the actual purpose of loans, customer satisfaction, and asset quality, rather than just deposit and loan volumes. Illegal practices will continue to be addressed until the industry truly returns to its mission of serving the real economy.
In Summary
The days of banks manipulating figures to meet targets are over. Regulators are pushing the industry to shift from a focus on quantity to a focus on quality. Only by effectively supporting the real economy can banks achieve long-term success. Ordinary people will also notice changes in bank services; banks may no longer aggressively encourage deposits but will place more emphasis on meeting customers' actual loan needs, such as for entrepreneurship or home purchases, providing more genuine support.