According to a source, the Zambia Securities and Exchange Commission has imposed penalties on Standard Chartered Bank, a multinational banking group headquartered in London, for improperly selling Chinese real estate company bonds to one of its Zambian clients during the most severe period of the real estate crisis in Asian countries.
Standard Chartered Bank is currently seeking to sell its wealth and retail banking business in Zambia.
After a lengthy investigation lasting several months, the Zambia Securities and Exchange Commission took “enforcement actions” against the bank for two violations.
The first violation involved the bank’s failure to disclose “material information” about bonds it sold in March 2022. These bonds, issued by the state-owned Chinese developer Sino-Ocean Group, defaulted a year after issuance and are currently almost worthless, similar to many bonds in the real estate industry.
Additionally, the Zambia Securities and Exchange Commission found that Standard Chartered Bank used “exclusionary” contract terms, shifting all risk responsibility to the client, which violated Zambia’s securities rules.
In a statement to Reuters, Standard Chartered Bank said, “We respect the findings of the Zambia Securities and Exchange Commission, but we will exercise our right to appeal in accordance with appropriate local procedures.”
The statement further noted, “We fully understand the matter and are reviewing the necessary details to clarify the situation. Ensuring compliance with regulatory standards in all markets is a top priority for our bank.”
The country’s securities commission began investigating the case in April. According to Zambia’s Securities Act, Standard Chartered Bank now has 30 days to appeal.
The securities commission has the authority to levy fines on lending institutions or publicly or privately issue “reprimands or warnings,” but cannot formally order financial institutions to compensate clients for improper sales practices.
It is currently unclear what kind of penalties Zambia’s regulatory authorities plan to impose on Standard Chartered Bank.
In November, the bank announced its intention to sell its wealth and retail banking business in Zambia, including operations in nearby Botswana and Uganda.
Standard Chartered Bank has been operating in Zambia for nearly 120 years and is the country’s oldest bank.
In fact, the bank is reducing its overall business in Africa, having sold its operations in Tanzania in recent years, as well as subsidiaries in Angola, Cameroon, Gambia, and Sierra Leone.
The Chinese real estate crisis began in the summer of 2020 when the real estate bubble burst, and the Chinese government fundamentally restricted opportunities for large developers with excessive debt burdens to obtain credit. According to Barclays, 70% of Chinese developers holding dollar bonds defaulted since then. Many construction sites were halted, leading to the melting of prices and Chinese real estate assets, with evaporated real estate assets exceeding $18 trillion.
The crisis has had international ramifications. Goldman Sachs has warned clients that the Chinese real estate market is still deteriorating, with a distant rebound on the horizon.
(reference: Reuters)