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.