Pudong bank probes 400m yuan loans to single borrower

PUBLISHED : Thursday, 08 June, 2006, 12:00am
UPDATED : Thursday, 08 June, 2006, 12:00am

Auditors uncover alleged fraud in 91 transactions involving the purchase of Shanghai luxury properties

Shanghai Pudong Development Bank has launched an investigation into an alleged 400 million yuan loan fraud involving the purchase of properties in Shanghai.

Official reports released yesterday said the bank, Citigroup's partner in Shanghai, was investigating the loans that were used to buy 91 luxury properties in the city.

Shanghai Pudong and Citigroup declined to comment.

The reports said that in 2004 and last year, a man named Qu Huping took 89 loans from the bank's Lujiazui branch and two from its Luwan branch, totalling 400 million yuan, to buy up-market properties in Pudong, Luwan and Huangpu districts, which had the highest prices in the city.

Many of the apartments were in Shimao Riviera Garden, one of the most expensive blocks overlooking the Huangpu river on the Pudong side whose prices have reached a maximum of 40,000 yuan per square metre.

In October last year, during an internal audit, the bank discovered an unsecured housing loan to Mr Qu. Auditors later found that Mr Qu had acted as agent for 91 loans, allegedly under different names.

The rights for the properties were all transferred to a single company, Yongjia Investment Management, which listed Mr Qu as an employee. The firm was a wholly owned foreign company set up in Shanghai in 2003 by an American Chinese named Stefanelyigu.

Since it uncovered the alleged fraud, the bank has foreclosed 50 of the properties, including 35 in Shimao Riviera Garden, on which it held mortgages. The collateral on 32 of the apartments, for loans totalling 126 million yuan, was substantially less than their value.

Investigators say they have uncovered property overvaluations used to extract bigger loans, the use of false identities and the falsification of documents to secure the loans.

One of city's major banks, Shanghai Pudong began operations on January 1, 1993, and listed on the stock market in November 1999. At the end of last year it had assets of 573 billion yuan and 350 offices nationwide, according to its website.

It is unclear how the scandal will affect the bank's ambitious development plans. It wants to issue up to 700 million yuan in additional A shares and its board last month approved a plan to issue up to three billion yuan in subordinated debt in the interbank bond market.

It also said last month that it would apply to set up a fund management company with AXA Group of France. It has no immediate plans to list in Hong Kong.

The bank last month announced first-quarter net profit of 662.7 million yuan, up from 513.8 million a year earlier, with core revenue rising to 6.06 billion from 5.02 billion. It put its ratio of non-performing loans at the end of the first quarter at 1.91 per cent, down from 1.97 per cent at the end of last year.

Mortgages have been one of the most risky sorts of bank loans in China and the focus of many illicit deals as investors buy for speculation in a booming market.

Mid-tier and small-sized banks regard mortgages as important areas for lending as they struggle to compete with the Big Four banks, which dominate corporate loans.

Last month, banking regulator Liu Mingkang demanded that the expansion of property credit be brought under control through higher down payments for homes and investment properties.