CHINA Guangfa Bank Co. said yesterday that documents and seals for a letter claiming to guarantee bond payments by the lender were forged, in the second such incident in the nation this month.

    The revelation by the bank comes after Zheshang Property & Casualty Insurance Co. said Friday that it is in touch with Guangfa Bank over payments on Cosun Group’s private bonds guaranteed by a unit of the lender after the notes defaulted Tuesday last week.

    “Over the past few years, business growth of financial institutions has outpaced their capability to boost internal controls and also gone beyond the radar of regulators,” said He Xuanlai, a Singapore-based credit analyst at Commerzbank AG. “After the recent incidents, requirements on bolstering compliance and risk management will definitely be tightened.”

    A lack of transparency and protection in bond documentation are adding to angst among investors after Sealand Securities Co. said earlier this month a former employee was found to have forged a seal to conduct bond trading. Concern about the bond market has been climbing after at least 28 onshore notes defaulted this year amid an economic slowdown, jumping from seven in 2015.

    Investors are demanding a higher reward to park money in the corporate debt. The yield premium of seven-year AAA corporate bonds over government notes has widened 44 basis points this month, set for the biggest increase since 2007.

    “The basics of internal risk controls at many Chinese firms are almost non-existent,” said Oliver Rui, a professor of finance and accounting at China Europe International Business School. “These incidents also exposed weak regulatory oversight and added to the urgency of setting up a super-regulator which can oversees all financial segments at the same time because financial institutions are evolving.”

    The private bonds issued by Cosun Group, a telecommunications firm in Guangdong, were sold on Zhao Cai Bao, a platform operated by an Alibaba Group Holding Ltd. affiliate. Two subsidiaries of Cosun defaulted because of cash shortages, Zhao Cai Bao said Tuesday last week, citing information from the Guangdong Equity Exchange.

    Zhao Cai Bao said Wednesday it will offer money to cover legal expenses if investors want to protect their interests through lawsuits. (SD-Agencies)