Hong Kong Probes China’s Citic Bank Lending

Amid escalating political tensions between Hong Kong and China, the Financial Times reported Thursday (Aug. 15) that Hong Kong authorities have reportedly opened an investigation into Chinese banks operating in the city.

According to the publication, Hong Kong has commenced multiple probes into Chinese conglomerates’ offshore finances, including the Hong Kong Monetary Authority’s investigation into China Citic Bank International. Reports said the watchdog is focusing on the Chinese bank’s corporate lending operations, with unnamed sources telling the FT that the probe will include a look into HNA and Zhonghong Zhuoya and their borrowing activities with the bank.

“Starting in 2015, several Chinese companies with obscure origins began buying up tens of billions of dollars in asses overseas and taking on massive debts,” the publication stated, adding that Chinese firms are increasingly looking toward Hong Kong banks to fulfill their debt needs while Chinese regulators tightened their offshore finance opportunities.

China Citic Bank International has been among several financial institutions looking to take advantage of that trend, reports noted. But since the beginning of the 2015 spending spree, many of these heavily-indebted conglomerates have sold off billions of dollars in assets. Unnamed sources told the publication that Citic Bank International has similarly tamed its efforts to expand investment banking operations.

At the same time, China has been experiencing an overhaul of its banking market amid tighter regulations and a continuing surge in corporate debt.

Recent analysis from Barclays found an estimated $647 billion “blind spot” among Chinese banks in the form of financials that had not yet been reported for 2018. Barclays’ report predicted more exits of smaller banks and non-bank financial institutions, as well as more M&A activity in China’s banking sector ahead.

In an effort to ramp up economic growth, Chinese regulators have also introduced new measures to support private and small businesses, as well as open its markets to foreign companies that have historically complained of unfair treatment.