Violations unearthed at Bank of China


The Bank of China is trying to float its Hong Kong operation, but the IPO could be disrupted by publicity over problem lending

HONG KONG, China -- Chinese auditors have uncovered 22 serious lending violations at the Bank of China.

The cases, the result of a scan by the national audit office, involve 2.7 billion yuan ($326 million).

The problems emerged during an audit last year of the bank's 2000 operations, Li Jinhua, the head of the National Audit Office, said Wednesday.

It is not clear whether the fraud cases are connected to the dismissal of a prominent banker. State media reported only that 35 people have been "handed over to relevant departments."

The Bank of China's former president, Wang Xuebing, was fired from his position as president of the China Construction Bank last Friday.

Authorities regularly audit China's banks and are due to examine the books of CCB this year. Wang was transferred from the Bank of China in early 2000.

Wang under investigation

Chinese authorities have confirmed Wang is under investigation over questionable loans made while he was in charge at the Bank of China, which Wang headed from 1993 to 2000.

Prior to that, Wang also supervised the bank's U.S. operations out of its New York office.

The U.S. Treasury Department's Office of the Comptroller of the Currency, which monitors the operations of overseas banks, is reportedly also investigating the bank.

Wang was a former high-flyer in Chinese banking circles. But he has fallen fast and hard.

He had been rumored to be the subject of a Chinese investigation following his transfer to the China Construction Bank. But it had not been confirmed.

Loans under scrutiny

Dai Xianglong, governor of the central People's Bank of China, said Wednesday that Wang is being investigated by the "relevant departments" over questionable loans made directly under his leadership.

Among the transactions that regulators are reportedly scrutinizing are loans of more than $20 million made to a New York-based company part-owned by Wang's wife.

China is striving to tighten its finance-industry oversight as it enters the World Trade Organization and prepares for competition from overseas banks.

The negative publicity around the Bank of China threatens to disrupt a proposed stock offering worth $4 billion to $5 billion of its Hong Kong subsidiary.

But some bank analysts say investors will be able to distinguish the operations of that unit.