Stock Markets June 25, 2026 02:10 AM

Major Chinese State Banks Slide After Auditor Flags Tax and Lending Irregularities

Bank of China and Agricultural Bank shares fall on National Audit Office findings; wider financial sector pressured as central bank adjusts liquidity tools

By Caleb Monroe
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Shares of China’s largest state-owned lenders plunged in Hong Kong trading after the National Audit Office identified tax-related breaches at Bank of China and improper lending at Agricultural Bank of China in its annual review. The audit also cited governance weaknesses at China Everbright Environment Group, while the People’s Bank of China announced an overnight reverse repo pilot that helped shape market sentiment.

Major Chinese State Banks Slide After Auditor Flags Tax and Lending Irregularities
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Key Points

  • National Audit Office accused Bank of China of exploiting tax preferences to avoid about 2.37 billion yuan in corporate taxes between 2023 and 2025 by disguising 11 private funds as public funds (tax implications for financial sector).
  • Agricultural Bank of China was cited for inadequate due diligence after extending 11.07 billion yuan in loans to projects reportedly not qualifying as high-standard farmland developments, with some proceeds diverted into wealth-management products and debt repayment (impacts lending and agricultural project financing).
  • Audit also flagged governance weaknesses at China Everbright Environment Group, and the report pressured the broader banking sector, contributing to declines at other major lenders and a 0.3% drop in the Shanghai Composite (market and regulatory impact).

Hong Kong-listed shares of China’s largest state-owned lenders fell sharply following the publication of the National Audit Office’s annual report, which accused two major banks of tax and lending irregularities. Bank of China saw the steepest fall, touching its lowest level since late March, while Agricultural Bank of China also slid to its weakest price since March 24.

Market moves

Bank of China Ltd H (HK:3988) dropped as much as 6.5% to HK$4.93, marking its lowest intraday level since late March. Agricultural Bank of China (HK:1288) declined 4.3% to HK$5.34, its weakest since March 24. Trading in other large lenders was also softer as investors digested the audit’s findings.

Audit findings - Bank of China

The National Audit Office said Bank of China exploited tax preferences that were intended for public mutual funds, enabling it to avoid roughly 2.37 billion yuan ($330 million) in corporate income taxes between 2023 and 2025. The audit report alleges the lender used affiliated financial entities and nominal investors to present 11 private funds as if they were public funds, which allowed those vehicles to claim corporate income tax exemptions.

Audit findings - Agricultural Bank of China

Agricultural Bank of China was separately criticised for insufficient due diligence in its lending. The audit states the bank extended 11.07 billion yuan in loans between late 2021 and August 2025 to projects that, according to the report, did not meet the qualifications for high-standard farmland development. The audit further indicates that some of the loan proceeds were subsequently redirected into wealth-management products and used to repay debt rather than being applied to the intended farmland projects.

Other entities cited

The report also identified governance shortcomings at China Everbright Environment Group Ltd (HK:0257). Auditors said the state-owned financial conglomerate lacked effective decision-making control over several majority-owned subsidiaries and did not exercise adequate oversight of certain units under direct management.

Broader market and sector impact

The audit-driven selloff weighed on the wider Chinese financial sector, with Industrial and Commercial Bank of China Ltd (SS:601398), China Construction Bank Co (SS:601939) and other big lenders trading lower during the session. The Shanghai Composite slipped 0.3%, hurt by weakness among financial stocks, while the tech-heavy Shenzhen Component rose 1.3%.

Monetary policy signal

Investor sentiment was further influenced by an announcement from the People’s Bank of China that it will implement overnight reverse repo operations on June 29-30 as part of the next stage of its monetary policy framework reform. The central bank said the overnight facility will complement its existing seven-day reverse repo, which carries a rate of 1.4% and serves as its main policy benchmark. The move follows earlier guidance from Governor Pan Gongsheng that authorities would broaden the use of short-term liquidity management tools.

Responses from the banks

Bank of China stated it will carry out the rectification measures required by the auditor and strengthen its risk and compliance management. The audit report noted that neither lender immediately provided broader comment on the findings at the time the audit was released.


This episode forms part of Beijing’s annual scrutiny of state-backed financial institutions and reflects the authorities’ heightened oversight of the sector as policymakers work to contain systemic risks while providing support for a slowing economy.

Risks

  • Heightened regulatory scrutiny of state-owned financial institutions could increase volatility and downward pressure in the banking sector (affects financial stocks and market sentiment).
  • Insufficient due diligence and misallocation of loan proceeds could raise credit and operational risks for lenders and for funded projects, particularly in agricultural development financing (impacts banking and agricultural project sectors).
  • Governance shortcomings at state-owned conglomerates may undermine investor confidence and complicate oversight, potentially affecting valuations of related companies (impacts investor confidence in state-backed firms).

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