Bank customers in Henan and Anhui were reportedly incentivized to open accounts at the six rural banks due to the high interest rates they offered—rates exceeding four percent annually, far higher than typical interest rates in the United States. However, the banks’ funds have been frozen since April, allegedly due to their connection to organized criminal activity, leading thousands of depositors to demand their money back and voice frustration with Chinese regulatory agencies’ unwillingness to intervene on their behalf.
banki używały nielegalnych działań dla szybkich zysków
Rural Banks Used Illegal Means to Accelerate Growth
However, nearly three months later, the China Banking and Insurance Regulatory Commission has put the blame on a private investment firm that holds large stakes in all four banks, according to a report by CNN. The report added the Henan police said weeks ago a criminal gang headed by the investment firm’s controller “has been suspected of using village banks to commit serious crimes.”
Rural Banks Used Illegal Means to Accelerate Growth
The Henan police detailed that the suspects controlled several banks through a group company and used third-party financial product platforms and their own firm to collect deposits and sell financial products. The organization then reportedly made fictitious loans as a way to illegally transfer the funds.
China banned banks from selling deposit products via third-party online platforms in early 2021. In a statement, China’s Banking and Regulatory Commission (CBIRC) said the move was aimed to prevent spillover financial risks brought by the rapid development of the financial technology sector.
However, the CBIRC said third-party online platforms allowed the banks to bypass geographical restrictions and grow their business nationwide. Reportedly, some of the deposit products were sold via platforms affiliated with, or owned by, China’s tech giants such as Baidu and JD.com.
These deposit products are usually attractive to users because they offer higher interest rates compared to big banks. However, in China’s economy, which has been battered by draconian Covid lockdowns and is currently facing a slowdown, borrowers now struggle to repay the banks, arguably making it more difficult for the banks to deliver the returns they offered savers.
Reports by Chinese media claim that the frozen deposits could be worth up to $1.5 billion and authorities are investigating the banks. Notably, if the investigation finds that the savings are “non-compliant” transactions, the depositors could lose all their life savings.
Over the past two months, the depositors have orchestrated several campaigns protesting in the city of Zhengzhou, the provincial capital of Henan. And most recently, the depositors protested in Zhengzhou earlier today, where they were confronted by Chinese authorities who used violence to disperse the gathering.
https://tokenist.com/chinas-bank-run-why-4-rural-banks-froze-up-to-1-5b-of-client-funds/
https://www.regulationasia.com/china-arrests-gang-responsible-for-henan-bank-fraud/
https://www.globaltimes.cn/page/202208/1274149.shtml
http://www.chinadaily.com.cn/a/202207/12/WS62ccb988a310fd2b29e6bba5.html
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