Photo taken on November 10, 2023 shows a decoration for the Annual Conference of Financial Street Forum 2023 in Beijing Photo: courtesy of Financial Street Forum

China's banking and financial regulator has imposed fines of more than 17 million yuan ($2.37 million) on 17 banks for breaching regulations on loan management products and lending, a latest move to oversee and regulate financial institutions and financial markets, the Securities Times reported on Sunday.

On Friday, the National Financial Regulatory Administration (NFRA) issued 55 new penalty notices, affecting various banking entities including national development banks, state-owned commercial banks, joint-stock banks, urban and rural commercial banks and village banks. Two individuals were barred from the industry for life.

The 17 banks include one of the nation's largest commercial banks, Bank of Communications, with a penalty of 4.9 million yuan, making it the institution with the highest penalty for alleged loan fraud. Three other commercial banks also received penalties exceeding 1 million yuan each. 

Two employees of a rural commercial bank and Bank of Communications were penalized for engaging in unlawful activities, according to the NFRA. 

The disclosure highlighted the lack of internal controls and poor management of loans and collateral at the banks involved, analysts said, adding that amid the country's intensified crackdown on financial risks and malpractice, the current stringent regulatory stance will continue and deepen, which is essential for accelerating the construction of a financial powerhouse and crucial measure for preventing and resolving financial risks.

Notably, more than half of the penalty notices were related to illegal and irregular activities in the credit sector, underscoring it as a focal point for banking infractions. The main issues involved inadequate loan management and the misappropriation of loan funds, with the majority of penalties related to these issues.

This situation highlights the need for banks to strengthen their management of credit, which is central to commercial banking operations, Zhou Maohua, an economist at China Everbright Bank, told the Global Times on Sunday.

Strict supervision has become the norm in the financial industry, Zhou said.

In the long run, this is beneficial for the sustainable development of the financial market. Both financial institutions and investors need to adapt to this trend, improve their capabilities, and enhance their risk awareness to find new opportunities in the new regulatory environment, he added.

China's banking and insurance regulator has imposed penalties totaling 738 million yuan in fines over irregularities, on 380 commercial bank entities, in the first six months this year. 

As of July 30, the number of penalty notices had increased to 1,119, with the amount reaching 885 million yuan, data from domestic financial services provider iFinD showed.

Such efforts will help promote a more standardized and transparent financial industry, enhance the risk management capabilities of financial institutions, and protect the rights and interests of investors, thereby strengthening market confidence, Zhou said.

According to international auditing company PricewaterhouseCoopers, the banking regulator and its local branches across China imposed 1,127 fines on banks and individuals in the second quarter of this year, down by 14.62 percent from the second quarter. 

There was a 14.7 percent year-on-year fall in the total fines imposed and a slight 1.31 percent decrease in the number of penalties.

Analysts said that the continuous decreases in the number of penalty notices and the total amount of fines indicate an improvement in the compliance management level of the banking industry and positive trend in the industry's ecosystem. 

Regulatory requirements are expected to become stricter, and banks will need to focus on internal management, compliance awareness and risk control.

China has made tackling financial risks one of its top priorities. The recently released resolution of the Third Plenary of the 20th Communist Party of China Central Committee made an important commitment to deepening reform of the financial system.

"We will improve the financial regulatory system to ensure that all financial activities are placed under supervision in accordance with the law, strengthen regulatory responsibility and accountability systems, and improve regulatory coordination between the central and local levels," according to the resolution.

"We will establish binding constraints for defusing risks at an early stage, and build a robust system to effectively fend off and control systemic risks and ensure financial stability. We will improve the mechanisms for protecting financial consumers and cracking down on illegal financial activities, and establish a firewall for industrial and financial capital," it added.