Banking sector's "Anti-Internal Competition" in progress: Two banks issued penalties on the same day for "illegally assigning deposit assessment targets," with regulatory accountability directly targeting the root of the system, penalizing both business practices and the penalty mechanism.

The Daily Economic News Reporter: Liu Jukai    Editor: Dong Xing Sheng

On May 6th, the Sanming Regulatory Branch of the National Financial Supervision and Administration Bureau disclosed two administrative penalty notices. Fujian Sha County Rural Commercial Bank was fined a total of 1.7 million yuan for multiple reasons including “illegally issuing deposit assessment targets,” with relevant responsible person Zhong Luhua receiving a warning; Datan County Rural Credit Cooperative was fined 1.45 million yuan for similar reasons, with two responsible persons warned.

Two fines issued in one day, the amounts are not astronomical, but the reasons are particularly attention-grabbing—“illegally issuing deposit assessment targets.” This wording is not common in regulatory penalty notices. Unlike past violations that focused more on “inflated deposits and loans” or “loan-to-deposit conversions,” these fines target the internal performance evaluation mechanisms of banks themselves.

“This can also be considered part of ‘anti-involution,’ as bank personnel need more protection,” an industry insider lamented to the Daily Economic News.

Image source: Screenshot from the National Financial Regulatory Bureau website

Since 2026, from major bank branches to rural commercial banks, there has been an unnoticed shift in the reasons behind violations listed in penalty notices. The focus of regulatory sanctions is shifting from specific operational violations like “inadequate loan checks” and “fund misappropriation” to the internal performance appraisal methods—those key institutional arrangements that drive grassroots behavior.

The same deposit certificate was pledged twice: a penalty notice reveals the secret behind the “rush to the period-end” target

These two bank penalties were issued for reasons including “illegally issuing deposit assessment targets.” Notably, in January this year, another bank was fined for setting assessment targets.

On January 27th, the Dalian Regulatory Bureau of the National Financial Supervision and Administration disclosed a penalty notice. Agricultural Bank of China’s Dalian branch and Dalian Jinzhou sub-branch were fined a total of 600k yuan for “issuing loans using deposit certificates opened on the same or nearby dates as collateral without actual demand, inflating deposit and loan figures,” and for “establishing assessment methods outside the performance appraisal system and setting period-end deposit evaluation indicators.”

The fine amounts are modest, but the reasons are noteworthy: a customer deposits money in a bank, then uses that deposit certificate as collateral to borrow funds, which are then deposited back into the same bank... Under this “loan—deposit certificate—reloan” cycle, both deposit and loan figures inflate, while the funds circulate within the banking system without ever flowing into the real economy.

According to incomplete statistics, in the first two months of 2026, at least 16 banks were penalized for inflating deposit and loan figures, including branches of state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks. In January alone, 34 penalty notices related to such violations were issued, compared to only 4 in December 2025. The surge in penalties at the start of the year points to an old problem that regulators are refocusing on—quarter-end “rush to the period.”

Three methods of inflating deposits and loans

Reviewing regulatory announcements since 2026, the methods for inflating deposit and loan figures seem complex but can be summarized into three main paths.

First, “deposit certificate cycle.” As previously described, enterprises and individuals open deposit certificates with funds from loans or their own capital, then use these certificates as collateral to obtain new loans, with the borrowed funds again forming deposits. One or two cycles of this process can significantly inflate both deposit and loan data. The covert aspect of this operation is that each transaction appears compliant—certificates are genuine, collateral is real, and loans are indeed issued—but in reality, the funds never leave the banking system.

Second, “loan-to-deposit conversion.” Banks explicitly or implicitly require enterprises to redeposit a certain proportion of their credit funds back into the bank when issuing loans. For example, China Everbright Bank’s Jiaozuo branch was fined 600k yuan for “poor post-loan management, with credit funds flowing back to borrowers; loan-to-deposit conversion, inflating deposit and loan figures.” Guangxi Beibu Gulf Bank and its branches were also fined a total of 2.05 million yuan for violations including “loan-to-deposit conversion,” “inflated deposit and loan figures,” and “setting deposit assessment targets in violation of regulatory rules.”

Third, seemingly rough but still active at the grassroots level, “interest subsidy deposits.” For instance, some bank employees personally rebate customers with “shopping cards” or other incentives to secretly attract deposits.

According to incomplete statistics, since 2026, regulators have issued about 20 penalty notices for illegal deposit absorption, including Zhejiang Mintai Commercial Bank’s Shanghai branch, fined 7.15 million yuan for “illegally attracting deposits through third parties”; Quanzhou Bank, fined 6.25 million yuan for “improper deposit absorption”; Zhejiang Online Bank, fined 1.3 million yuan for “rebate-based deposit attraction,” among others.

A senior banking analyst told the reporter that these three methods share a common feature: “funds are circulating in a loop”—on the surface, deposit and loan scales increase, but in reality, no money flows into the real economy. This not only distorts credit statistics but also poses hidden risks to banks’ asset quality.

Why can’t daily assessments prevent “month-end surges”?

Since regulators have shifted their focus from “period-end scale” to “average daily scale,” why do period-end rushes still occur frequently?

The evolution of regulatory systems provides some background. In 2018, the former China Banking and Insurance Regulatory Commission and the People’s Bank jointly issued a document clarifying that the deviation of deposits at month-end should not exceed 4%, and forbidding the setting of period-end deposit scale assessment indicators. The 2021 “Measures for the Management of Commercial Bank Liability Quality” further required that branch assessments should not be layered with increased standards. The institutional thresholds are quite clear.

However, actual operations are far more complex than the regulatory texts. In some institutions, grassroots performance evaluations still implicitly include period-end weightings. Industry insiders revealed that although daily average indicators account for the highest proportion in assessments, rushing to meet period-end targets is considered “the easiest score to achieve”—daily customer deposits take time to accumulate, but a few “bridge loans” at month-end can immediately boost the numbers. Technically, a surge of lending at month-end can also raise short-term daily averages, exposing a loophole in assessment design.

More concerning is that some banks bypass formal performance systems by establishing “supporting measures.” The penalty notice for Dalian branch of Agricultural Bank of China explicitly pointed out the “setting of assessment methods outside the performance appraisal system and establishing period-end deposit evaluation indicators.” Guangxi Beibu Gulf Bank was also penalized for “setting deposit assessment targets in violation of regulatory rules.” The case on May 6th involving two banks in Fujian for “illegally issuing deposit assessment targets” directly points to the root of the assessment mechanism.

A researcher told the reporter that the root cause of period-end surges lies in the bank’s evaluation system. When “scale” remains the primary measure of a bank’s status and influence, no matter how regulations are worded, grassroots staff will find ways to respond. This is not merely a moral issue but a problem of incentive mechanisms.

Fines on “business” and “mechanisms”: regulatory accountability shifts quietly

If the penalties in the past two years mainly targeted “inadequate loan checks” and “fund misappropriation,” a new signal has emerged since 2026—regulators are beginning to focus on the internal evaluation mechanisms of banks themselves.

For example, the 1.2 million yuan fine on Liangshan Rural Commercial Bank cited “non-compliance with performance evaluation indicators and mechanisms, leading to inflated deposits and loans.” Similarly, Jiangxi Anfu Rural Commercial Bank was fined 1.8 million yuan for “loan period-end surges,” Hubei Xiaogan Rural Commercial Bank for “deposit and loan period-end surges,” and Guangxi Beibu Gulf Bank for “violation of deposit assessment indicator regulations.” Fujian Sha County and Datan County Rural Credit Cooperatives were also fined a total of 3.15 million yuan for “illegally issuing deposit assessment targets.”

From “fines on business” to “fines on mechanisms,” the depth of regulatory accountability has clearly increased.

The analyst explained that this shift is logical: if only “flies” are targeted without addressing the “disease,” as long as the evaluation system remains unchanged, new personnel will follow the same old path. The core problem of inflated deposits and loans is not just individual operational misconduct but the “scale obsession” driven by the evaluation system—head office assessments of branches, branch assessments of sub-branches, and sub-branch assessments of individuals, all layered and interconnected, making period-end targets a “hard task.”

Meanwhile, the increased emphasis on individual accountability also sends a clear signal. Previously, “double penalties” mainly involved warnings, but in February 2026, a responsible person at Quanzhou Bank was banned from working in banking for life. Similarly, in February, Hengfeng Bank’s Zhengzhou branch was fined 2.1 million yuan for inflating deposits and loans, with four responsible persons penalized. The accountability chain has extended from “business violations” to “mechanism failures,” and from institutions to individuals.

The cost of scale obsession: accelerating the accumulation of real risks

At the beginning of 2026, the banking industry faced an unprecedented complex situation. Deposit rates continued to decline, a large volume of high-interest fixed deposits matured, and residents’ funds rapidly shifted into wealth management, funds, and other asset management products. Meanwhile, net interest margins had fallen to historic lows, making the traditional high-interest deposit gathering model difficult to sustain.

For large banks, leveraging their customer base and brand advantages, there is still room to shift from “competing for deposit scale” to “competing for comprehensive financial assets.” But for many small and medium-sized banks lacking differentiated competitive strategies, deposit scale directly affects survival. Under the real pressure of “not violating regulations, but still unable to meet targets,” some institutions have chosen to take risks.

The regulatory work conference of the China Banking and Insurance Regulatory Commission in 2026 explicitly called for “deepening the rectification of disorderly competition,” guiding banks to “firmly establish correct business, performance, and risk concepts.” This reflects a sober recognition of the “involution” in the banking sector. The essence of period-end surges is a compliance-costly digital race—while quarterly reports look good, the costs of fund circulation, data distortion, and credit resource misallocation will eventually be paid at a higher price.

According to data from Enterprise Early Warning, in the first quarter of 2026, financial regulators issued 1,700 penalty notices totaling 612 million yuan, affecting 328 banks. The overall decline in penalty notices does not mean regulatory easing—personal penalties account for nearly 60%, and among million-yuan fines, rural commercial banks are the most frequently penalized, indicating a new law enforcement logic focused on “precise strikes.”

The analyst concluded that period-end surges are not a new problem, but the current regulatory environment combined with market conditions has made this issue more urgent. In the past, banks could absorb the costs of violations amid rapid growth, but today, falling interest rates, narrowing spreads, and deposit outflows are accelerating the process—every digital figure gained at the expense of compliance could speed up the accumulation of real risks.