Regulatory Zero Tolerance! 16 Banks Penalized for Falsifying Deposits and Loans in First Two Months of the Year

Since the beginning of 2026, regulatory attention has once again focused on the issue of banks artificially inflating deposit and loan figures.

According to incomplete statistics from First Financial, in the first two months of this year, at least 16 banks have been penalized by regulators for violations such as inflating deposit and loan scales. These cases involve branches of large state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks, among various types of institutions. Most cases also hold both the institutions and responsible personnel accountable, with a “dual penalty” system becoming the norm. Some cases even include lifetime bans from working in the banking industry.

Industry insiders believe that as regulation continues to tighten, the space for banks to expand deposit and loan scales through various operational means is gradually shrinking. Meanwhile, against the backdrop of a persistent narrowing of net interest margins, weak credit demand, and intensified deposit competition, the traditional model driven by scale expansion is facing adjustments.

More than a dozen banks penalized for inflating deposit and loan figures

From the disclosed penalty notices, inflating deposit and loan scales remains one of the main reasons for bank regulatory sanctions this year.

Hengfeng Bank’s Zhengzhou branch was fined 2.1 million yuan for multiple violations including “inflating deposit and loan scales,” while four responsible personnel were also fined and warned. Beibu Gulf Bank in Guangxi was fined a total of 2.05 million yuan for issues such as “loan-to-deposit conversion,” “inflating deposit and loan figures,” and violating deposit assessment standards. Yining Rural Credit Cooperative in Nanning was fined 850,000 yuan for multiple violations including inflating deposit and loan figures.

Large bank branches are also among the penalized institutions. Agricultural Bank of China’s Dalian branch and Jinzou sub-branch were fined 300,000 yuan each for “issuing demand deposits on the same or near dates to pledge for unneeded loans” and “violating deposit assessment standards.”

In February, the enforcement of personal accountability increased. For example, in penalties related to Quanzhou Bank, responsible individual Lin was banned from working in the banking industry for life due to violations.

Additionally, Liangshan Rural Commercial Bank was fined 1.2 million yuan for inflating deposit and loan figures due to non-compliant performance evaluation mechanisms; Anfu Rural Commercial Bank in Jiangxi was fined 1.8 million yuan for “loan timing manipulation”; and Xiaogan Rural Commercial Bank in Hubei was fined 1.2 million yuan for “deposit and loan timing manipulation.”

According to incomplete statistics from the reporter, in the first two months of 2026, at least 16 banks were penalized for issues related to inflating deposit and loan scales. Notably, in January alone, there were 34 penalty notices related to violations, compared to only 4 in December 2025. The penalized institutions include branches of state-owned banks like Agricultural Bank of China’s Dalian branch, joint-stock banks like Hengfeng Bank, city commercial banks such as Qilu Bank, Rizhao Bank, Weihai Bank, and Beibu Gulf Bank, as well as multiple rural banks and credit cooperatives.

“Loan-to-deposit conversion” and similar operations remain common

From the disclosed penalty notices, “loan-to-deposit conversion” and “deposit certificate pledge loans” are still the main methods for inflating deposit and loan figures.

“Loan-to-deposit conversion” refers to banks issuing loans and then requiring the borrowing enterprise to deposit part of the loan back into the bank as a deposit, thereby increasing both loan and deposit balances on the books. Another method involves using deposit certificates as collateral to form a capital cycle. For example, a company or individual uses loan funds to open deposit certificates, then pledges these certificates to obtain new loans, creating a closed-loop within the banking system to expand deposit and loan scales.

Additionally, some banks issue loans to clients with no real financing needs or for purposes that are not clearly disclosed. Regulators view these operations as inflating bank deposit and loan figures on paper without real economic activity, instead circulating within the financial system, which may distort credit resource allocation. In recent years, regulators have maintained close attention to capital idle circulation. The central bank has repeatedly emphasized the need to prevent funds from circulating within the financial system.

Recent penalty notices show that regulators are not only concerned with specific operational behaviors but are also increasingly focusing on internal governance mechanisms. For example, penalties for Guangxi Beibu Gulf Bank and two branches of Agricultural Bank explicitly mention issues such as violating deposit assessment standards and establishing separate performance evaluation methods outside the official system.

Industry pressure drives “scale expansion”

The repeated occurrence of inflating deposit and loan figures is closely related to the current operating environment of banks.

The “opening season” at the beginning of each year is typically a critical period for bank business deployment. In recent years, many banks have started preparing for the “opening season” earlier, with some small and medium-sized banks even beginning their planning in the fourth quarter of the previous year.

During this period, increasing deposits and credit issuance remain key operational goals. The pressure to attract deposits is especially prominent among small and medium-sized banks. To compete for customers, some institutions have raised deposit interest rates or launched special deposit products.

Overall, bank profitability growth has faced certain pressures. Data from regulators show that by the second quarter of 2025, net profits for state-owned banks, joint-stock banks, city commercial banks, private banks, and rural commercial banks were 633.6 billion yuan, 268.3 billion yuan, 176.9 billion yuan, 10.5 billion yuan, and 140.9 billion yuan respectively, with city and rural banks experiencing year-on-year declines.

Meanwhile, large banks leverage their capital costs and channel advantages to deepen market penetration and compete for customer resources with regional banks, further increasing operational pressure on smaller banks. This pressure often propagates through the organization.

In practice, frontline staff often bear high performance targets. A bank employee told reporters that during target transmission, tasks are often raised step by step, and by the time they reach the customer managers, the targets may be significantly higher than initially assigned.

Zeng Gang, chief expert and director of the Shanghai Financial and Development Laboratory, pointed out that some banks overly rely on a “scale-driven” growth model, directly linking branch and staff compensation and promotion to deposit and loan scales at month-end or quarter-end.

“Under enormous target pressure, grassroots employees tend to resort to methods like ‘loan-to-deposit conversion’ or illegal third-party deposit collection to meet targets. Additionally, some banks may engage in similar operations to hide bad assets or meet capital adequacy requirements,” Zeng said. Despite multiple warnings from regulators, the internal incentive system often views violations as a “necessary cost” to achieve performance, making it difficult to eliminate such irregularities.

Beyond competitive pressures, changes in banks’ debt structures also impact industry operations.

In recent years, the phenomenon of “deposit shifting” has persisted, where residents move funds from bank deposits to wealth management products, funds, and insurance offered by non-bank financial institutions. Data from the central bank show that in January, resident deposits increased by only 34 billion yuan year-on-year, while deposits in non-bank institutions increased by 2.56 trillion yuan.

The central bank’s “Q4 2025 China Monetary Policy Implementation Report” states that although some funds transfer from residents’ deposit accounts into wealth management products, these products often target interbank deposits and deposit certificates, directly increasing non-bank institutions’ deposits at banks. If invested in other underlying assets, they ultimately convert into corporate and related entity deposits, which eventually flow back into the banking system.

From a banking operation perspective, changes in the liability structure pose new challenges. Traditional retail fixed deposits are relatively stable, while non-bank deposits are more sensitive to market interest rates and risk sentiment, exhibiting higher volatility and uncertainty. This requires banks to enhance liquidity management.

Scale-oriented models face adjustments

In the context of persistent narrowing of net interest margins, insufficient credit demand, and intensified deposit competition, some banks still exhibit strong inertia toward scale expansion.

Industry experts note that using various operational means to enlarge deposit and loan scales may improve certain indicators like loan-to-deposit ratios in the short term but can distort resource allocation and accumulate risks in the long run.

Under the continued enforcement of regulations, this growth model is gradually losing space. Many industry insiders believe that banks need to shift from a “scale-driven” approach to a “customer asset management” focus. This involves adjusting performance evaluation mechanisms to reduce reliance on point-in-time scale indicators and adopting more daily average-based assessments. Additionally, banks can develop deposit scenarios such as payroll distribution, supply chain finance, and cash management to deposit settlement funds.

Developing wealth management services is also seen as a key direction. Through financial products, fund sales, and insurance distribution, banks can maintain customer asset management scales amid changing resident asset allocations and increase fee-based income.

Zeng Gang believes that the fundamental reason for the persistent violation of deposit and loan regulations is the lack of a scientific internal performance assessment system and a strong short-term “scale obsession.” Looking at recent regulatory trends, the Financial Regulatory Administration’s tolerance for violations has continued to decline, with penalties increasing significantly. Meanwhile, as resident deposits gradually shift toward wealth management, insurance, and funds, relying solely on high-interest deposit collection is no longer sustainable. Banks must accelerate their transformation toward “big wealth management” to stabilize liabilities and improve medium- to long-term profitability.