China has ordered some banks to recall troubled loans and freeze troubled accounts linked to local government financing vehicles (LGFVs) after auditors uncovered illegal financial activities, reports Caixin. The move signals a further push to rein in risks from hidden local government borrowing.
The measures were disclosed in a report which found that inadequate oversight by these banks enabled some LGFVs to raise funds from the public to repay existing debt, in some cases offering guaranteed annualized returns of up to 12%.
The report said local government debt-related problems identified in the audit, including violations, were driven by attempts to make up fiscal shortfalls, insufficient oversight of state-owned enterprises and lax accountability, among other factors.