(Yicai) Dec. 29 -- China Merchants Bank is reclaiming CNY58.2 million (USD8.3 million) in performance-related remuneration that it paid to 2.5 percent of its employees last year as the Chinese lender holds its employees accountable should they expose the bank to risk.

China Merchants Bank is recalling the bonuses paid to 2,876 members of staff, out of the 113,000 it had on payroll as of the end of last year, the Shenzhen-based lender said yesterday.

This is a regular practice to meet regulatory requirements, a source from the bank told Yicai.

Financial institutions can recall bonuses that were paid to senior executives and employees in positions of responsibility should they fail to do their duties and should this result in violations of the law or heavy losses, an industry insider told Yicai.

China Merchants Bank has set aside reserves for annual salaries payable to employees, but the distribution of these reserves will be affected should there be a big fall in asset quality, significantly worsened risk and profit as well as serious violations found by regulatory authorities, it said.

As banks’ bad loan ratios rise, by reclaiming performance-based pay, senior management’s salaries can be tied to a lender’s business risks and serve as a constraint on how executives carry out their duties, an industry insider said. The finance sector is also cutting wages, so the withholding or recalling of bonuses is in line with the general trend, he added.

Over 95 percent of financial institutions had taken steps to recover or defer payment of performance-based remuneration as of the end of March, according to statistics released at the time by the China Banking and Insurance Regulatory Commission.

Bank of China, Bank of Communications and China Everbright Bank have said that they are withholding at least 40 percent of the performance-based salaries of senior managers and employees in key positions, and payment will be delayed for at least three years. And Industrial Bank said it is deferring 50 percent of top management’s bonuses.

Editor: Kim Taylor