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Seeking to halt a recent increase in bank corruption, China published rules Monday offering generous rewards to bank employees who expose corruption.
Bank managers will also be regularly rotated to different posts and monitored for involvement in pornography, gambling and drugs under the rules, which were issued by the China Banking Regulatory Commission.
Other steps announced included making senior managers legally responsible for major fraud cases, establishing a system of reporting on the stock investments of managers and top personnel and establishing new checks on loan approvals.
There’s been a succession of major cases due to weaknesses in risk management and internal controls, and this had led to major capital losses from banks, a commission official told Xinhua, the official news agency, in a statement that appeared in the Chinese press Monday. Xinhua did not identify the official.
The rules appear to be an effort to bolster confidence in China’s government-owned banks after a string of scandals tarnished plans to issue stock.
Late last year, the Bank of China disclosed that employees in one branch in Beijing alone had stolen 30 million yuan ($3.6 million); in February, the China Construction Bank revealed that employees in northeastern China had embezzled 33 million yuan; and a few days ago, the Agricultural Bank of China said that 43 employees in Baotou, in northern China, were under investigation after the disappearance of 115 million yuan.
On Sunday, the Bank of China announced that an employee in the northeastern city of Dalian had been arrested after embezzling 50 million yuan to gamble on soccer matches. Last week, it was disclosed that Zhang Enzhao, who resigned this month as president of the China Construction Bank, was being sued in a United States court over allegations that he took bribes from an American contractor.
The cases show the auditors are getting serious and going through the banks’ books, said Stephen Green, a senior economist with Standard Chartered Bank in Shanghai. But you’d have to be a fool to believe that Chinese banks are already out of the woods.
The government is pressing banks to prepare for the arrival of international banks in 2007, when World Trade Organization rules require China to lift many restrictions on the entry of foreign banks.
Tang Shuangning, deputy director of the China Bank Regulatory Commission, warned that China’s banks must accelerate reforms to prepare for greater competition. Calling the banks’ entry into the stock market a double-edged sword, he said government-owned banks had to improve their internal management and controls if they were to survive in the new environment.
Mr. Tang warned that the Agricultural Bank of China and the Industrial and Commercial Bank of China faced special difficulties as they prepared to issue equity. A successful revamping of Agricultural Bank depends on wholesale reform of China’s troubled rural finance sector, and renewal at the Industrial and Commercial Bank depends on reforming China’s government-owned businesses, he said.
None of the recent losses from fraud is large compared with the $2.9 trillion in deposits Chinese banks held at the end of last year, but analysts said the scandals show that the banks are struggling under lax management.
In addition, the banking commission warned Chinese banks about involvement in the kind of risky trading that led to the collapse of China Aviation Oil (Singapore) late last year. The unit’s collapse reflects the massive risks in derivatives trading, the commission said on its Web site.
The Chinese directive comes ahead of a report this week by PricewaterhouseCoopers on that collapse to the Singapore Stock Exchange.
Source: http://query.nytimes.com/gst/fullpage.html?res=9C01E4DE123FF93AA15750C0A9639C8B63