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Mark O'Neill

In another blow to the mainland banking industry's credibility, a Ministry of Finance investigation into China Everbright Bank (CEB) has found widespread irregularities and a high level of non-performing loans.

The findings have forced the bank to postpone indefinitely its plans to list, an official newspaper reported yesterday.

The revelation appears to confirm long-held suspicions that Zhu Xiaohua, former head of China Everbright Bank and former chairman of China Everbright Ltd, was a casualty of the ministry's probe.

Mr Zhu was earmarked for a high-profile posting before he dropped out of the public eye.

CEB, founded in 1992 and of which the China Everbright Group is the biggest shareholder, announced in September 2000 - when it raised its capital to 7.46 billion yuan (about HK$7 billion) - that it planned to list within three years.

Many Chinese banks plan to issue shares, to raise capital and increase their profile, and the mainland's largest lender, Industrial & Commercial Bank of China, has targeted a listing by 2007.

The 21st Century Business Herald  said that CEB's plan had been postponed indefinitely because of the probe and its findings.

From August last year, the ministry sent 400 to 500 inspectors to 30 bank branches - the first such inspection since the Accounting Law was approved.

The ministry finished its investigation at the end of November and sent a report to the relevant central government departments. It sent the bank a copy on July 17.

It found many accounting irregularities, improper loans and practices and non-payment of taxes. It found that CEB had not paid 485.53 million yuan in company income tax.

After the second capital increase, the probe found, the Everbright Group - which needed money to finance its share of the fresh capital raising - had signed a contract to lease to the bank its headquarters for 20 years at a cost of 635 million yuan. This enabled the group to falsely increase its capital in the bank, in contravention of accounting regulations on financial institutions.

Since the report was published, the bank has paid 357.18 million yuan in back taxes, but still owes 128.35 million.

Some of CEB's biggest problems arose from its acquisition in 1999 of the China Investment Bank. Nine banks competed for the takeover target, eager to obtain 137 branches across China.



Everbright postpones listing after probe shows accounts irregularities