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Auditors uncover 20 fraud cases

By Yang Zhen (China Daily)
Updated: 2009-02-20 07:38

The National Audit Office (NAO) discovered 20 fraud cases involving 6 billion yuan ($878 million) while reviewing financial institutions in 2008, NAO head Liu Jiayi said at an Information Office of the State Council press conference yesterday.

Liu said about half of the cases involved China's top three State-controlled banks - Industrial and Commercial Bank of China (ICBC), Bank of China (BOC) and China Construction Bank (CCB).

Individuals suspected of responsibility have been, or are being, prosecuted, Liu added.

Bank-related financial fraud usually involves administrators bending rules for key customers or politically connected borrowers in return for money or other gains.

But Liu pointed out that not all the 6 billion yuan was lost.

"If a bank official illegally issues a 1 million yuan loan, he usually can pocket about 10 percent in return," Liu said.

The government said at the end of last year it would step up audits of new projects, State-owned enterprises and financial institutions in 2009 to fight the global financial crisis.

Lending has surged since the government lifted lending quotas for banks last November. The country's central bank said loans issued in January reached a record high of 1.62 trillion yuan.

While encouraging banks to increase lending to support struggling industries, the government also stressed risk management among domestic lenders.

Lending related to financial fraud often involves bad loans made because the borrower's credibility is not adequately assessed.

"Stricter audits of financial institutions can help ensure their healthy growth," Liu said.

He said audits also showed the capital adequacy and non-performing loan (NPL) ratios in major State-controlled banks had improved over the years.

By the end of last September, the capital adequacy ratios of ICBC, CCB and BOC was 12.62 percent, 12.10 percent and 13.89 percent, respectively. This was higher than banking regulators' requirement of 10 percent.

According to figures from China Banking Regulatory Commission, the country's banking regulator, the NPL ratio in State-controlled commercial banks fell 5.24 percentage points to 2.81 percent in 2008.

(China Daily 02/20/2009 page2)