Hong Kong-listed China Minsheng Banking Corp, the ninth largest lender in the mainland by assets, confirmed on Tuesday night that Zhang Ying, president of the sub-branch, is suspected of illegal conduct and is under police investigation.
“The company has set up a working group to proactively assist the police department in their investigation. The amount involved and the specific facts of the case as reported by certain media are still under investigation,” it said in a filing to the Hong Kong Stock Exchange.
According to a report in the mainland publication, the 21st Century Business Herald, investors bought products that claimed to guarantee the principal and an annualised return of at least 8%.
They were told that these products were wealth management products originally bought by other clients in the bank, who needed urgent liquidity and had to sell them before the maturity.
According to the report, a client filed a complaint after discovering that the products were not on the bank's record.
Investors bought products that claimed to guarantee the principal and an annualised return of at least 8%
Most of the investors are private banking clients from the Hangtianqiao branch who are acquainted through a golfing club, according to the report. Some bought up to RMB 80m of such products. The total amount involved is estimated to reach RMB 3bn, the report said.
The bank has proposed paying back the principal amount to the investors by July, according to the report.
Minsheng Bank is the ninth largest lender in the mainland by assets in 2016, according to S&P Global Market Intelligence. Its private banking business is also among the top ten biggest in terms of assets under management, reaching RMB 297bn as of 2016-end.
Wealth management products (WMPs) sold through mainland banks have come under the spotlight because they have been loosely regulated despite holding significant investor assets.
Investments in WMPs were RMB 26.3trn in total as of June 2016, according to the China Banking Wealth Management Registration System. By comparison, China's mutual fund industry reached RMB 9.2trn in scale last year.
“In recent years, WMPs have become an important source of funding for Chinese borrowers, such as local government financing vehicles, corporates in industries with overcapacity issues, property developers, and other corporates facing funding constraints,” noted ANZ Bank in a research report on China.
“Banks typically set up, package, and distribute WMPs to investors who are attracted by the higher yields, and believe that the banks that sold the products would provide an implicit guarantee against default risks,” the ANZ report said.
Guo Shuqing, the recently appointed chairman of the China Banking Regulatory Commission (CBRC), has vowed to tighten oversight of wealth management products.