Fraud is responsible for losses totalling more than a billion yuan in the first nine month of the year. Bad loans are also another important factor in bank losses. Banking reform is coming and bank managers are likely to be stripped of some of their current power.

Beijing (AsiaNews/SCMP) – China's commercial banks uncovered 894 fraud cases in the first nine months of the year, a third more than in the same period last year, as a result of tighter controls imposed by the government.

China's banks are creaking under the weight of bad loans, and Beijing wants to reform the sector because by the end of 2006 it will be open to foreign banks as required by China's accession to the World Trade Organisation.

Currently, China has 189 banks and 30,000 rural cooperatives with assets totalling 30 trillion yuan, but 55 per cent of the 30 trillion yuan market is controlled by four big banks: the China Construction Bank, the Agricultural Bank of China, the Industrial and Commercial Bank of China, and the Bank of China. All of them are state-owned.

The China Banking Regulatory Commission reported that 892 bank employees were punished for fraud and other crimes, including absconding with public funds and colluding with outsiders, up from 668 in the first three quarters of last year.

More than 40 per cent of them were management-level staff—nearly 70 per cent, or 613 cases, of the 894 cases uncovered during the third quarter were found by the institutions' internal audit mechanisms.

In the third quarter, 84 cases involving more than 1 million yuan were uncovered, eight fewer than in the second quarter. But for experts, this is still a sign that the problem is widespread and that controls are insufficient to stop dishonest public officials.

A total of 199 fraud cases involving 246 million yuan were discovered in government-owned banks and joint-stock lenders between July and September—a drop of 86 cases and 397 million yuan from the second quarter.

Government plans to reform China's banking system are up against a widespread criminal free-for-all attitude that underscores poor corporate governance and weak internal controls within state lenders.

In August, the former chief of Bank of China's Hong Kong arm, Liu Jinbao, was suspended on charges of corruption. A former China Construction Bank chairman, Zhang Enzhao, came under investigation in March and was replaced. Also in March 43 officials in the Inner Mongolia branch of the Agricultural Bank of China were accused in a scam worth 115 million yuan.

Shen Xiaoming, deputy director of the China Banking Regulatory Commission, said that bank managers should be reined in. Under current regulations they can give loans without any controls. He expects the big banks will soon adopt foreign banking procedures and appoint loan approval committees for the most important decisions. (PB)

• china
• banking
• system
• fraud
• bad
• loans
• reform
• world
• trade
• organisation