Guo also dismisses claims of cheap sales to foreign investors
China Construction Bank (CCB) chairman Guo Shuqing has denied reports that the bank covered up irregularities during its US$9.2 billion Hong Kong initial public offering in October last year.
His comment came after two mainland reports earlier this month revealed the misallocation of a 30 million yuan client deposit at a Guangdong bank branch and regulatory findings of compliance problems at its Frankfurt branch.
'We've never attempted to hide the many management shortfalls we have had,' Mr Guo said on the sidelines of the annual meeting of the national legislature yesterday. 'But not every problem has to be publicly disclosed.'
Investigation into the Guangdong misallocation, reported by a Zhejiang-based firm in August, was still ongoing during CCB's listing, the first public offering by one of the Big Four state banks and therefore did not make the cut to the listing prospectus, he said.
The firm in August sued CCB over the deposit's disappearance, Securities Market Weekly reported.
Problems uncovered by the China Banking Regulatory Commission during a routine inspection last year included violations of internal loan procedures and rules, inaccurate data-keeping, insufficient internal audit and a lack of independence in risk management, said 21st Century Business Herald.
Mr Guo also dismissed criticisms that the strong performance of CCB's stock after listing gave credence to claims large state banks sold strategic stakes to foreign investors too cheaply before the float.
CCB sold a combined 14.1 per cent stake to Bank of America and Temasek Holdings for no more than 1.2 times its book value before the listing and its shares closed at 3.81 times book value on Friday.
'There is no undervaluation or overvaluation in such transactions as the prices are decided by market forces,' Mr Guo said. 'The only problems are whether they comply with laws and regulations, whether they were conducted in a fair and transparent way, whether bribery or other irregularities were involved.'
Mr Guo also dismissed market observation that CCB's management, perhaps urged by a government eager to push forward banks' corporate governance and operational reforms, recently tried to talk down its share price.
Some observers say that CCB's share valuation, high even in a regional context, may make pricing difficult for the upcoming international share sales by larger peers Bank of China and the Industrial and Commercial Bank of China.
'The government will not interfere with market forces,' Mr Guo said. 'I think our strong share performance will only benefit, not harm, the two other banks.'
Just 10 months before the full opening of China's banking sector to foreign competition, CCB has renewed calls for a reduced tax burden to sharpen its competitiveness against foreign rivals.
'The business tax should be reduced or even scrapped [so] we will be able to compete on a more level footing,' Mr Guo said.
Chinese banks pay 5 per cent of their revenue in business tax, which can be translated into additional corporate income tax of more than 10 per cent of profit.
The government also levies a 33 per cent corporate income tax on local banks. Foreign banks in China benefit from preferential tax treatment for foreign-invested firms.
Mainland banks have been lobbying for tax cuts for years but a reform is not seen as imminent.