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Chinese watchdog slaps its largest fine on China Guangfa Bank for misconduct

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Chinese watchdog slaps its largest fine on China Guangfa Bank for misconduct

The China Banking Regulatory Commission fined China Guangfa Bank Co. Ltd. 722 million yuan for its involvement in a string of defaults by Chinese electronics maker Cosun Group in 2016, The Wall Street Journal reported Dec. 8, citing the commission.

The regulator said the lender provided illegal guarantees to cover up nonperfoming assets and operating losses, hence aiding the borrower in hiding bad debt.

The fine is the largest imposed by the CBRC, after it fined China Minsheng Banking Corp. Ltd. 27.5 million yuan earlier this year for selling fake wealth management products. By comparison, the commission imposed 667 million yuan in fines in the first 10 months of the year, from 270 million yuan in all of 2016 and 6.3 million yuan in 2015.

It is also a sign that the country is ramping up its crackdown on how lenders have been concealing risks, the report added.

Cosun Group's defaults of over 1 billion yuan involved investment products sold through Alibaba Group Holding Ltd.'s affiliate Ant Financial Services Group, which in turn sold Cosun's debt securities to retail investors online.

This was "a major case of collusion" between bank staff and "outside criminals," the watchdog added.

The lender's branch in Huizhou had alleged that the debt instruments were guaranteed because of the borrower's good financial health. This impression fell apart after about 10 financial institutions holding contractual guarantees subsequently made claims on 12 billion yuan in illegal guarantees.

An Ant Financial spokeswoman said it took its internet products off its platform following the default, but declined to further comment on the company's involvement with the case. Efforts to reach China Guangfa Bank and Cosun Group were unsuccessful, the report said.

As of Dec. 8, US$1 was equivalent to 6.62 Chinese yuan.