A total of 328 banks were fined over 600 million yuan! In the first quarter of this year, both the number and amount of bank penalties decreased month-on-month, with credit violations becoming the "hardest hit" area.

Every Daily News Reporter｜Pan Ting    Every Daily News Editor｜Wei Wenyǐ

Since 2026, the banking industry has continued to maintain a strong posture of strict regulation, and regulatory authorities have taken a “zero tolerance” attitude toward illegal and noncompliant conduct by banks and relevant responsible parties.

Enterprise Prewarning data show that in the first quarter this year, the People’s Bank of China, the National Financial Regulatory Administration, the State Administration of Foreign Exchange, and their dispatched agencies issued a total of 1,701 administrative penalties against banking institutions and practitioners, down 15.88% from the previous quarter (Q4 2025). Of these, 684 were penalties against institutions and 1,017 were penalties against individuals. The amount of fines and confiscations totaled RMB 611 million, down 38.16% from the previous quarter, including RMB 595 million for institutions and RMB 16 million for individuals. Affected banks numbered 328, up 7 from the previous quarter.

Image source: Enterprise Prewarning

A reporter from The Daily Economic News (hereinafter referred to as “the ED reporter”) noticed that in the first quarter this year, the main areas of bank noncompliance were concentrated in lending business. Wang Pengbo, Chief Analyst at Boto Consulting, told the ED reporter that current noncompliance in lending business shows several relatively distinct characteristics, and multiple factors combined have led to lending-related noncompliance remaining prominent.

Lending noncompliance: “three reviews” gaps and funds being occupied are still key causes

When it comes to punishing illegal and noncompliant conduct by financial institutions, regulators have always strictly implemented the “dual-penalty system,” holding the relevant illegal institutions and individuals accountable according to law. Penalty types include fines, warnings, prohibitions on engaging in related professions or work, and more. For institution-level penalty orders, fines are the most common type; for individual-level penalty orders, warnings are the most common type.

After combing through the ED reporter’s findings, in the first quarter this year, the number of large penalty orders at the level of over RMB 8B declined. According to data from Enterprise Prewarning, in the first quarter, the People’s Bank of China, the National Financial Regulatory Administration, the State Administration of Foreign Exchange, and their dispatched agencies issued a cumulative total of 127 penalty orders of over RMB 8B against banking institutions and practitioners, down 27 from the previous quarter. Moreover, the amounts of fines and confiscations associated with these large penalty orders decreased by a larger margin compared with the previous quarter.

Among them, China Construction Bank had the highest amount penalized and confiscated, at RMB 43.5061 million. Next were Pudong Development Bank and Hangzhou United Rural Commercial Bank.

Overall, in the first quarter this year, the areas of bank noncompliance mainly focused on lending business. Enterprise Prewarning data show that in the first quarter, regulators issued 1,043 penalty orders for noncompliance in lending business, compared with 1,127 in the previous quarter, a quarter-on-quarter decrease of 7.45%.

Bank noncompliance by sector in Q1 2026 Image source: Enterprise Prewarning

Of these, lending business noncompliance mainly involved failure to properly perform the “three reviews” on loans,违规办理、发放贷款, and inaccurate classification of credit assets, among other issues.

The ED reporter also noted that inadequate internal control systems are another major reason for banks being penalized. This specifically includes violations of regulations on credit reporting business management, violations of prudent operating rules,违规收费, and situations where the price does not match the quality, among others. Enterprise Prewarning data show that in the first quarter this year, regulators issued 414 penalty orders due to inadequate internal control systems, down from 450 in the previous quarter, a quarter-on-quarter decrease of 8%.

Overemphasis on growth and neglect of risk control: experts analyze deeper causes of lending noncompliance

Pursuant to Article 3 of the Commercial Bank Law of the People’s Republic of China, among the businesses that commercial banks are allowed to operate, it explicitly includes “making short-, medium-, and long-term loans,” which directly lays the legal foundation for commercial banks to carry out lending business. Articles 34 through 41 of the law provide specific provisions on guiding principles for loan business, loan review and approval, loan guarantees, loan contracts, loan interest rates, asset-liability ratio, and more.

For years, lending business has been a major area plagued by illegal and noncompliant conduct by banks. So what are the main characteristics of current noncompliance in lending business?

“Based on observation and data, current noncompliance in lending business mainly shows several relatively obvious characteristics: first, noncompliant conduct is still highly concentrated in the ‘three reviews’ process for loans—pre-loan investigations not performed properly, mid-loan reviews reduced to formalities, and inadequate post-loan management are still the most prominent manifestations; second, the problem of noncompliant diversion of lending funds is prominent, with funds flowing into prohibited areas such as real estate and the stock market, as well as phenomena like idle revolving and switching from loans to deposits; third, noncompliance covers a wide range of institution types—smaller and medium-sized banks are relatively more concentrated, while large banks more often show higher amounts per instance of noncompliance and higher penalty amounts.” Wang Pengbo said to the ED reporter that current lending business noncompliance patterns are interwoven with traditional lending, credit card, inclusive finance, and other businesses, showing diversified features.

In Wang Pengbo’s view, multiple factors combined have kept lending-related noncompliance prominent. On the one hand, there is an imbalance between banks’ internal business performance assessment and compliance management. Under pressures related to business scale and profitability, some branch institutions tend to emphasize growth while neglecting risk control. On the other hand, banks’ internal risk control implementation is not sufficiently in place. Although the system construction is relatively完善, there are shortcomings in the execution and rollout. Employees’ compliance awareness and the operational standardization are still insufficient. At the same time, some institutions harbor a mindset of luck regarding noncompliant behavior, and their rectification is not thorough enough. In addition, lending business has a long chain and many participating parties, which makes it relatively difficult for regulators to cover and conduct real-time control comprehensively, and this also leads to continued high incidence of noncompliance.

However, the ED reporter also noted that judging from the number of penalty orders and the amounts of fines and confiscations in the first quarter, since the beginning of this year, banking institutions have given more attention to lawful and compliant operation of lending businesses, especially in terms of lending business, where the nonperforming loan ratio has continued to improve.

Based on the nonperforming loan data of joint-stock commercial banks whose 2025 performance reports have already been published, it can be seen that, apart from a few banks, most joint-stock commercial banks’ lending business has been continuously optimized.

Disclaimer: The contents and data in this article are for reference only and do not constitute investment advice. Before using this information, please verify it. Any actions taken are at your own risk.

Cover image source: Liu Guomei