China’s largest banks have US$1.1 trillion in dollar funding at stake and face potentially steep fines from US legislation that targets penalizing lenders doing businesses with Chinese officials involved in Hong Kong’s controversial security law, according to Bloomberg Intelligence.
The bipartisan measure, which was passed by the US Senate and still needs to go through the US House of Representatives and be signed by the US president, bars financial institutions from providing accounts to sanctioned officials, many of whom might be assumed to use the services of China’s biggest banks, Francis Chan (陳永富), a senior analyst at Bloomberg Intelligence in Hong Kong, said in a note yesterday.
Banks in violation risk being cut off from accessing the US financial system, he said.
Industrial & Commercial Bank of China Ltd (ICBC, 中國工商銀行), China Construction Bank Corp (中國建設銀行), Bank of China Ltd (中國銀行) and Agricultural Bank of China Ltd (中國農業銀行), the nation’s four largest state-backed lenders, had a combined 7.5 trillion yuan (US$1.1 trillion) equivalent of US dollar liabilities at the end of last year, of which 47 percent were deposits, according to their annual reports.
The rest came from interbank borrowing and issuing securities to global investors.
The legislation would apply penalties against financial institutions only if a bank knowingly does business with an official under sanction.
The bill is intended to keep the penalties from capturing a broad swath of US companies, a US administration official familiar with the discussions said earlier.
Banks would be informed of what entities are on the sanctions list before penalties are imposed, the person said.
Among Chinese banks, Bank of China had the biggest exposure to the US dollar with about US$433 billion of liabilities, followed by ICBC.
Chinese lenders have been expanding their presence globally over the past decade by adding branches, making acquisitions and granting loans to fund everything from local power plants to toll roads.
Global banks could also be at risk, as they might also have Chinese officials, their relatives and associates as clients, Chan said.
Standard Chartered PLC paid more than US$600 million in fines last year for breaching sanctions against Burma, Cuba, Iran, Sudan and Syria.
BNP Paribas SA was fined US$8.9 billion by the US in 2014, the largest-ever for an individual bank, for transactions with Sudan and other blacklisted nations.
US President Donald Trump’s administration overnight escalated pressure on China over its crackdown on Hong Kong by making it harder to export sensitive technology to the territory, while lawmakers in Beijing yesterday approved the landmark security law.
The Department of Commerce said it is suspending regulations allowing special treatment to Hong Kong over things including export license exceptions.
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