By staff reporter Song Yanhua and intern reporter Zhang Yanling

Government auditors have accused nine financial institutions and four assets management companies of loaning billions of yuan to stock market and real estate speculators. Addressing the National Congress Standing Committee on August 27, Chief director of the National Audit Office Liu Jiayi said that list of accused includes China Development Bank (CDB), Bank of Agriculture, Everbright Bank, and People’s Insurance Company of China, among others.

In 2006, the central bank, the securities regulatory commission, and the China Banking Regulatory Commission (CBRC) ruled that bank loans to individuals or corporations should not be used to invest in the equities market or real estate. Despite the regulation, violations continued in 2006 and 2007 due to inadequate oversight of how loans were used after they were written.

This year’s total encompasses 43 crimes involving 14.16 billion yuan and 144 suspects. Among all the cases, CDB, the state bank for development projects, was found to have unlawfully granted loans amounting 9.1 billion yuan. Another 24.57 billion yuan in loans were misappropriated by the bank, among which 5.84 billion yuan were illegally invested into equity and real estate markets, as well as other sectors prohibited by the state.

This is not the first time the illegal lending practices of CDB or other major Chinese banks have been exposed. Last June, CBRC released a list of eight banks – including CBD, Bank of Communications and Bank of Beijing – that had made unlawful loans. Members of the list faced partial suspension of businesses and state-mandated termination for some senior executives.

Regarding its most recent list, the National Audit Office stressed that while most of the banks had sound business practices and responsible management, risks in their credit departments were unduly high. In particular, some medium-to-long-term lending procedures were not in compliance with the standard. Some loans heavily depend on local finances as collateral.

The Bank of Agriculture was found to have insufficient supervision over its 27 branches in terms of risk control, clearance of capital, and booking. Local illegal practices occurred involving over 24.3 billion yuan.

Lower level employees were implicated in most of the incidents involving the Bank of Agriculture. For example, from March 2004 to July 2006, two bank officers in northern Liaoning Province embezzled 3.1 billion yuan, of which 189 million yuan has yet to be recovered.

Everbright Bank and People’s Insurance Company of China were likewise found to have illegally invested 16.79 billion yuan in the capital market.

The National Audit Office said that all nine of the financial institutions cited for infractions have made efforts to correct their practices. To that end, 1,450 people have been investigated and dealt with, and 43.6 billion yuan has been recouped.

In addition to the nine financial institutions, four asset management companies were named for violations. According to their report, Huarong, Changcheng, Eastern, and Xinda received bad assets in accumulation of 801.2 billion yuan by the end of 2006. At present, only 20.67 percent has been dealt with.

These four companies are unable to collect enough cash from these bad assets to pay back the interests on refinancing or inter-bank bonds, which makes for unstable business operations.