China Banks: National Audit Office findings implications - governance scrutiny, limited financial impact

Research evidence excerpt

China Banks: National Audit Office findings implications - governance scrutiny, limited financial impact

ug 2025,

implying real credit growth may be slower than reported.

NAO audit an annual exercise; remediation and enforcement will follow

In previous years' annual audit, deficiencies were also found on certain financial

institutions. The 2024 audit report publicly named two policy banks and one insurer, I.e.

Agricultural Development Bank of China, The Export-Import Bank of China, and China

Life Insurance; while seven commercial banks with property-lending and LGFV-related

monitoring deficiencies remained anonymous. For years before 2024, no specific names

were disclosed. However, anonymity in the previous reports did not exempt the

institutions from rectification or regulatory follow-up. The normal process is for NAO to

deliver detailed findings and remediation requirements to the audited entities, while

matters outside its remit may be transferred to tax authorities, NFRA, PBOC, SAFE or

disciplinary bodies, for separate determination and potential enforcement.

Limited financial impact; corporate governance as key investor concern

Publicly disclosed penalties on banks suggest limited direct financial impact. In 2025,

SOE banks received cRmb649mn of fines, vs cRmb601mn for 12 joint-stock banks and

cRmb1.05bn for city and rural commercial banks. SOE banks' 2025 penalties were less

than 0.05% of their combined net profit (Figure 2TotalpenaltyonSOEbanksin2025representedonly0.045%oftheircombinedNPAT). This time, BOC's Rmb2.37bn

identified tax shortfall was equivalent to c1% of its 2025 net profit, with manageable

financial impact even after potential penalties. We thus see the market reaction mainly