In Depth: Banks Worry Individuals Are Using Loans to Ride Stock Market Boom

Both regulators and lenders have said that personal loans must not be used to buy stocks

Chinese banks are increasing scrutiny of retail loans out of concern that they are being misappropriated to invest in the stock market, after demand for personal borrowing shot up amid the recent stimulus-fueled rally.

When stock exchange boards become a sea of green, the opportunities to cash in are too good to pass up for some. Despite regulators making clear that bank loans must not be used to buy stocks, and lenders specifying restrictions to the same effect, some borrowers are still using consumer loans or personal business loans to hop on the bull-market bandwagon.

Chen, who works in the private sector, is one such investor. Following the announcement of the economic stimulus measures in late September, ahead of the weeklong National Day holiday that started on Oct. 1, Chen invested a total of 500,000 yuan ($70,100) borrowed from two banks in the stock market, he told Caixin.

However, his gains during the stock rally ahead of the holiday were soon erased in a downturn after the market reopened, leaving him with a slight loss. The Chinese market experienced a pullback after the holiday with the benchmark Shanghai Composite Index trending down.