Closer scrutiny yields sharp fall in bank fraud

PUBLISHED : Friday, 03 August, 2007, 12:00am
UPDATED : Friday, 03 August, 2007, 12:00am

Mainland sees 63pc drop in cases

Mainland commercial banks reported a sharp drop in fraud and irregularities in the first half of the year amid tighter internal controls and more oversight by financial regulators and the central government.

The China Banking Regulatory Commission yesterday said that mainland financial institutions reported 179 cases of fraud and irregularities in the six months, a 63 per cent drop from last year.

Of the fraud cases, 51 involved at least one million yuan, 76 fewer than for the same period last year. The commission said it stopped 76 potential fraud cases through successful monitoring.

Without mentioning the names of the organisations, the CBRC said 216 people responsible for fraud were punished while a further 442 officials were reprimanded.

Fifty manager-level officials were removed from their posts. The Communist Party's disciplinary wing also played a part in the oversight effort.

Gan Yisheng, vice-minister of the discipline department of the party's central committee, said yesterday that nine national banks had been inspected by special teams led by senior party discipline officials.

'Our targets were core leaders of those financial organisations and our mission was to make sure they had been properly implementing the party's policies, keeping their hands clean and working with a high level of democracy,' Mr Gan said.

Without specifying the problems, Mr Gan said his team uncovered some problems in those banks and had made suggestions to the State Council about how to improve related regulations.

Mr Gan rejected suggestions that the party had overreached its responsibilities by inspecting financial institutions, saying the finance sector was too important to escape the party's scrutiny.

'The practice proves this inspection tour [by party discipline officials] of financial organisations is absolutely necessary ... and has achieved very positive results,' he said.

An industry insider said the combined efforts of the regulator and the party discipline department had played a positive role in restraining bank officials from abusing their powers, given the fact that most national-level bank officials were appointed by the central government. 'Since bank governors are not completely accountable to the board, they should be reminded that someone is closely watching their performance. In this case, the party and the CBRC would certainly hold them accountable,' the source said.

Ernst & Young partner Freddie Chui said the performance of mainland banks had improved in recent years, thanks largely to their listing on the stock market. Of the biggest mainland commercial banks, only the Agricultural Bank of China is still working on an initial public offering.

Jing Ulrich, chairman of JP Morgan China equities, said exposing fraud had become routine for the CBRC which has wide backing for investigations.

The regulator said most fraud uncovered happened at the grass-roots level, involving loans to start-up companies, investments in stock markets and buying of lottery tickets. Some bank officials were also found taking bank money for personal use.

The CBRC named the Agricultural Bank of China and rural financial organisations as important to watch in the second half of the year but did not elaborate.