China's top banking regulator's recent fine is "credit negative" for Shanghai Pudong Development Bank Co Ltd, Moody's Investors Service said yesterday, adding that the move will harm the lender's reputation.
Last Friday, the China Banking Regulatory Commission imposed the Shanghai-based lender 462 million yuan ( million) fine for its illegal cover-up of bad loans.
The CBRC accused the bank's Chengdu branch of "knowingly" providing 77.5 billion yuan in illegal new loans to 1,493 shell companies via false declarations. Around 200 people at the Chengdu branch were held accountable.
In a credit outlook report yesterday, Moody's said the scandal illustrated deficiencies in the bank's risk management system and internal controls and and the problem was "significant" given the long period of the illicit activities, the amount of credit and the number of people involved.
Moody's said although the branch had complied with the CBRC's request for remedial action by September 2017 and resumed normal operation, it may "take some time" for the bank to revamp its control and risk management systems, and to rebuild its reputation.
Moody's, however, doesn't see the fine to really affect the lender's financial earnmings as it equals around 0.7 percent of the bank's 2017 pre-tax profit.
A preliminary financial announcement said the bank expected its net profit in 2017 to still rise by 2.15 percent from a year earlier, even after taking into account the fine.
Moody's said the fine showed China's strict scrutiny of banks and that it will deter the lenders from risk of breaches and non-compliance.