Mon, Apr 04, 2005 page12

• Fraud charge hits Bank of China

  CORRUPTION An employee is suspected of being involved in a US$77 million property loan scam, just as the banking sector is trying to soothe foreign investors' concerns

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  The Bank of China (中國銀行), China's second-biggest lender, said a loan manager in Beijing was arrested in connection with a 640 million yuan (US$77 million) property-loan fraud, the latest in a serious of scandals pointing to lax controls in the industry.

  Beijing Huayunda Real Estate Development Co (華運達房地產開發) borrowed money from the Beijing branch between 2000 and 2002 for its Senhao Apartments project using falsified documents, Wang Zhaowen (王兆文), the bank's spokesman, said by telephone yesterday in Beijing. The bank fired Xu Weilian (徐維聯), a deputy chief manager of retail loans, who was "suspected of being involved" in a conspiracy with outside parties, Wang said. Xu was later arrested, he said.

  The latest corruption revelation comes as China's biggest four state banks are preparing to go public and need to convince investors that bad loans and poor management are features of the past. Bank of China, China Construction Bank (中國建設銀行) and Agricultural Bank (農業銀行), three of the big four, have been implicated the past two weeks in fraud cases involving more than US$28 million, according to reports by the Xinhua News Agency and the China Banking Regulatory Commission.

  "They have to clean up for sure to convince investors that they are now different, with shareholders' interests in their minds," said Arthur Lau, a banking analyst with Barclays Bank Plc in Singapore. "I hope there will be less severe irregularities going forward."

  China ordered banks on March 28 to identify which managers are responsible for what departments and to make more timely announcements of financial irregularities in an attempt to tighten surveillance. The scandals won't delay the government's plan to sell shares in the banks, Central Bank Governor Zhou Xiaochuan (周小川) said a day later.

  Investigations by Beijing police have continued since the Bank of China first reported the real estate fraud case in September 2002, Wang said, confirming the first report of the case in Xinhua yesterday. A general manager at Huayunda Real Estate and lawyers involved with the falsified home purchase contracts are being probed, he said.

  China's banks are trying to strengthen management and clean up bad loans of more than US$500 billion as they prepare to sell shares overseas and confront increased competition when restrictions on foreign banks operating in the country are lifted in December next year. Bank of China has said it's increasing the frequency of audits amid calls by the country's banking regulator to improve their oversight of loans and internal operations.

  Investors can't be sure that there will be no more fraud, Lau said by telephone yesterday.

  "The best thing the bank can do is to try and bring the thing forward and deal with it, instead of hiding it behind the scene," he said. "I don't think that's going to derail listing plans."

  The Bank of China, which reorganized into a shareholding company last year, is seeking strategic foreign investors before listing overseas, as early as this year.

  The lender said on Jan. 31 that Gao Shan (高山), head of its Harbin branch in northeastern China, was responsible for missing funds amounting to "several hundred million yuan."

  In a separate case, Zhai Changping (翟昌平), a clerk at Bank of China's branch in the northeastern city of Dalian, was arrested after embezzling US$6 million, Xinhua reported on March 27. Zhai had worked at the bank for more than a decade, it said.

  That followed a March 24 announcement by the banking regulator of 115 million yuan of fraud at two offices of the Agricultural Bank of China, and the arrest of a Construction Bank of China branch manager for allegedly embezzling US$8 million.
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