Bank chief linked to loan sharking

The president of the Postal Savings Bank of China (PSBC), who has been taken into custody on suspicion of having committed economic crimes, is found to have been involved in illegal fund-raising activities as well.

The revelation is a fresh sign that lax supervision had made the lender vulnerable to irregularities.

Tao Liming (pictured) was suspected of misappropriating the bank's assets to invest in a loan-sharking business, according to two people with knowledge of the case.

He was tentatively charged with taking bribes and issuing illegal loans. Formal charges are likely to be brought later.

Last week, the Communist Party's anti-graft body placed Tao under shuanggui, a disciplinary system equivalent to house arrest for party members that is outside the legal system. His alleged wrongdoings represented a blot on the reputation of the banking regulator, which granted PSBC a banking licence in 2007 with ambitions of transforming it into a giant retail bank.

Before PSBC, an offshoot of the former State Postal Bureau, was commercialised in 2007, it was limited to taking deposits and was barred from making loans.

'Within the postal bureau, no one really understood banking businesses and regulations at that time and it was by all means a wrong decision,' a retired bureau official said. 'But everyone welcomed the commercialisation, believing the PSBC could make a lot of money later on.'

PSBC has the widest geographical presence among domestic banks, with a network of 37,000 outlets across the mainland.

It was unclear yesterday whether Tao pocketed gains from the loan-sharking schemes, the people said. At least two other officials, including Chen Hongping, chief of a PSBC asset operation division, and Zhang Zhichun, a department chief with the China Post Group, the bank's parent, also are under investigation.

Over the past decade, private lending businesses in affluent areas such as Zhejiang and Guangdong provinces had resorted to borrowing illegally from commercial banks at relatively low interest rates and, in turn, offered credit to cash-hungry small businesses at usurious interest rates.

PSBC had 2.8 trillion yuan (HK$3.43 trillion) of deposits to tap, and a lack of oversight created chances for bold officials to grant loan sharks illegal loans, the people said. 'More officials are expected to be caught when investigations widen,' the retired official said. 'After all, it is a faulty system and an unqualified bank.'

Tao was a department chief before he was appointed PSBC president in 2007, having had no experience in running a bank.

The PSBC yesterday said the investigation into Tao would not affect its daily operations, but the people said the scandal had proved the commercialisation move was unsound.

The case, following the detention last month of Yang Kun, an executive vice-president of the Agricultural Bank of China, underscored the lax regulations on the banking sector, analysts said. Yang was found to have misused the bank's funds to gamble at casinos in Macau.

37,000

The number of PSBC branches in operation, the widest reach among domestic banks. It is the mainland's seventh-largest lender by assets