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Case Studies
Connected lending
Donald was a branch manager of a bank and became acquainted with a client who was working in an investment company. Donald learnt from the client that there was a company proposing to issue new shares to the public next month. It was anticipated the share price would triple on the issuing date.
In order to purchase a larger block of shares, Donald had to obtain more cash for the speculative transaction. He asked his wife to apply for a personal loan from his bank. Donald subsequently approved the application to its maximum amount according to his wife's salary without disclosing the conflict of interest.
Case Analysis
Donald might breach Section 83 of the Banking Ordinance for approving loan to his wife. He might also violate the Code of Conduct[1] of his bank for granting credits or loans to himself or to members of his immediate family including spouse or to companies in which he or his immediate family is interested. Before processing the loan application submitted by his wife, Donald should observe the specific guidelines which his bank adopts in relation to transactions with connected parties and declare his relationship with the applicant to his bank.
[1] According to HKMA’s Supervisory Policy Manual CG-3, each authorized institute (bank) should develop its own Code of Conduct containing certain minimum conduct requirements which include “no member of staff should grant credit to himself, his relatives or companies in which he or his relatives have a personal interest.”