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Bank of East Asia downplays concerns over executive arrest

Bank of East Asia has played down the reported detention of one of its executives in mainland China over corruption allegations, highlighting the Hong Kong-based lender already reeling from rising property-related impairments in trouble.

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

Chen is suspected of circumventing credit rules and issuing loans in return for bribes. The investigation could be extended to another unit of the bank, East Asia Qianhai Securities, the report said, citing unnamed sources.

The reported detention comes as Beijing steps up its anti-corruption campaign targeting banks and other financial firms to curb corruption linked to high-risk loans.

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

“The BEA has implemented rigorous internal control mechanisms and protocols. This matter has no impact on BEA China’s lending activities 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 its banking sector in 2007, along with HSBC and Standard Chartered.

It remains one of the most franchised international banks in China and its lending to mainland customers accounted for about 36% of its total lending at the end of June.

Like its peers, the lender suffered from increased loan impairment charges in the first half of 2022, mainly due to borrowers exposed to the Chinese commercial real estate sector. It reported net profit of HK$1.5 billion ($191 million) for the first half of this year, down 44% from a year earlier.

Brian Li, co-managing director of BEA who oversees continental and international business, described the credit environment on the continent as “very difficult, especially with the real estate sector”, according to an online briefing on the results. Net profit for the bank’s Chinese arm plummeted 99% in the first half of the year to just HK$2 million.

BEA China was fined Rmb 11.2 million by the China Banking and Insurance Regulatory Commission in May 2021 for violating rules prohibiting lending to property developers and for failing to register these loans in the home loans section.

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

Additional reporting by Chan Ho-him in Hong Kong