Canada Markets open in 5 hrs

China's banking regulator fines 19 banks over £2-billion pledged loan fraud

Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo (Reuters)

BEIJING (Reuters) - China's banking regulator has imposed fines of 52.5 million yuan (£5.9 million) on 19 banks in the northwestern province of Shaanxi and the central province of Henan over a 19-billion-yuan (£2.1 billion) pledged loan fraud, it said on Friday.

It is the third major penalty handed down since the start of the year as the regulator steps up a crackdown on illegal practices to fend off financial risk.

Criminals illegally pledged gold of low purity to obtain loans from banks, including branches of large state lenders Industrial and Commercial Bank of China Ltd <601398.SS><1398.HK> and Postal Savings Bank of China Co <1658.HK>, the regulator said.

The findings highlight the lack of internal controls and poor management of loans and collateral at the banks involved, the China Banking Regulatory Commission (CBRC) said in an online statement.

"The banks were overly obsessed with pursuing the scale and speed of business development, without knowing their customers," it added.

Poor risk assessment and weak legal infrastructure leave Chinese banks suffering from rampant "ghost collateral" - security that appears to be on the books, but which, upon closer inspection, is not there or is worth less than it seems.

Last week, the regulator fined 12 lenders after uncovering illegal trading of 7.9 billion yuan of bank bills.

Three PSBC branches involved in the pledged loan fraud were fined 10 million yuan, while four ICBC branches were fined 6.5 million yuan in total, the regulator said.

It also punished 104 bank employees involved in the case, the regulator added.

(Reporting by Shu Zhang and Ryan Woo; Editing by Clarence Fernandez)