Bank of East Asia downplays concerns over executive’s arrest

Bank of East Asia has downplayed the reported detention of one of its executives in mainland China over bribery allegations, putting the spotlight on the Hong Kong-based lender already reeling from a surge in impairment losses linked to the struggling property sector.

Chen Zhiren, executive-vice president and head of northern China for BEA China, was detained by Beijing police in July in connection with bribery allegations, financial news website Cailianshe reported on Tuesday.

Chen is suspected of skirting credit rules and issuing loans in exchange for bribes. The investigation may be extended to another unit of the bank, East Asia Qianhai Securities, the report said, citing anonymous sources.

The reported detention comes as Beijing intensifies its anti-corruption campaign targeting banks and other financial companies to curb graft linked to high-risk loans.

“According to the information available to the bank, this matter pertains solely to the personal actions of an individual employee,” BEA said in a statement to the Financial Times.

“BEA has stringent internal control mechanisms and protocols in place. This matter has no impact on BEA China’s lending business and does not involve East Asia Qianhai Securities.”

BEA, which has a strong presence in Hong Kong, was one of the first lenders outside the mainland to set up an incorporated bank in China when the country opened up its banking sector in 2007, along with HSBC and Standard Chartered.

It remains one of the most franchised international banks in China and its loans to mainland clients accounted for about 36 per cent of its total lending as of the end of June.

As with its peers, the lender suffered from a surge in impairment charges on loans in the first six months of 2022, mainly because of borrowers exposed to the Chinese commercial real estate sector. It reported a net profit of HK$1.5bn ($191mn) for the first half of this year, down 44 per cent from a year earlier.

Brian Li, BEA’s co-chief executive who oversees mainland and international business, called the credit environment in the mainland “very challenging, especially with the property sector,” according to an online earnings briefing. Net profit for the bank’s Chinese arm collapsed 99 per cent in the first half of the year to just HK$2mn.

BEA China was fined Rmb11.2mn by the China Banking and Insurance Regulatory Commission in May 2021 for violating rules against granting loans to real estate developers and failing to record those loans in the property loan section.

The bank’s Ningbo branch was fined another Rmb300,000 this April for violating credit risk management rules and allowing the embezzlement of development loans to property developers.

Additional reporting by Chan Ho-him in Hong Kong