China tightens banking controls amid scandals

March 28 | Updated: Mar 29 2005, 05:30am hrs
China ordered banks to identify which managers are responsible for what departments and to make more timely announcements of financial irregularities, after a bank clerk was reported to have stolen $6 million in the latest scandal to beset the industry.

Some banks have failed to build up sufficient regulations or cannot effectively implement them, the China Banking Regulatory Commission said in a statement on its website on Monday. They have not punished officials for violating rules and have failed to improve weaknesses in their risk management and internal control systems.

Zhai Changping, a clerk at the Bank of China branch in the northeastern city of Dalian, was arrested after embezzling $6 million, the official Xinhua News Agency said on Sunday.

Zhai, who had worked at the bank for more than a decade, lost most of the money gambling and shopping, the report said. That followed a March 24 announcement by the banking regulator of 115 million yuan ($14 million) in fraud at two offices of the Agricultural Bank of China, the smallest of the big four state lenders.

Bank of China, the second-biggest lender, said in January that it found 293 million yuan missing at a branch in the northeastern province of Heilongjiang.

The government is pushing banks to reorganize, improve management and write down $438 billion of bad loans to prepare them for public share sales and for increased competition as restraints on overseas lenders are removed.

The number of cases is high, and the situation is complex, Tang Shuangning, a vice chairman at the regulator, said in a speech posted separately on the Web site. The emphasis on our work from now on is to resolve the system of internal management and supervision.

In a separate statement on Monday, the banking regulator also asked banks to identify officials responsible for derivatives trading and tighter supervision over trading in markets. The order aims to prevent a repeat of cases such as the $550 million loss announced by China Aviation Oil (Singapore) Corporation, which sought protection from creditors in November. China Aviation is 60% owned by Beijing-based China Aviation Holding .

Yanping Li & Rob Delaney / Reuters