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Leading banks report lending violations

By Wang Bo (China Daily)
Updated: 2009-06-24 07:51

Three major banks have said the nation's top auditor had uncovered lending irregularities but added the findings would not impact on their financial results.

The National Audit Office last year found violations by Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and China CITIC Bank, the lenders said in separate statements to the Hong Kong Stock Exchange.

The news sent the shares of the three Hong Kong-listed lenders down 2-3 percent yesterday amid mounting concerns that recent sharp increases in lending could lead to a pile-up of bad loans.

Related readings:  China central bank calls for 'more rational' lending  ICBC says Q1 net profit rises 6.03%  China Construction Bank net profit declines 18.2% in Q1  Fraud uncovered in stimulus spending

None of the banks revealed the amount of loans involved in these violations but the audit report found 20 major cases of irregularities in loans of about 6 billion yuan ($878 million) during the fiscal year 2007.

Chief Auditor Liu Jiayi said in February that about half the amount involved three banks - ICBC, CCB and Bank of China.

In their statements, the three lenders said they had dealt with the matters raise, and taken steps to improve risk management and internal controls.

ICBC, the world largest bank by assets, said all the non-compliance issues had been addressed while CCB and China CITIC Bank claimed that most loans had been recovered.

Auditors found "non-compliance issues in business operations and weaknesses in the operations and management of certain branches of the bank," ICBC said.

CCB and China CITIC Bank said some branches had been found to have extended loans that violated government rules.

"In certain suspected cases, insufficient regulation of individual sub-branches also allowed for certain individual enterprises to fraudulently obtain bank loans by colluding with the bank's employees," CCB said.

The vast majority of the non-complying loans have been recovered and the outstanding amount will be collected shortly, it added.

Analysts said 6 billion yuan is not a big amount, and accounts for only a fraction of their loan portfolios.

"It is a common practice for banks to relax requirements for credit approval to some extent to meet annual credit targets and survive the fierce competition," said He Ziyun, finance professor at Beijing-based University of International Business and Economics.

The analysts also said the minor lending irregularities uncovered in 2007 do not necessarily imply such violations could become worse at a time when bank lending is booming.

Wu Xiaoling, analyst with Greatwall Securities, said this year most loans have been for government-led infrastructure projects, whose credit risk is relatively low, and banks have been prudent in lending to the private sector.

Bank lending has soared since the beginning of the year to shore up the slowing economy, with a total of 5.84 trillion yuan in new loans extended in the first five months, far exceeding the full-year target of 5 trillion yuan.