Arrest of Top Bankers in China May Be Sign of Reform

by CFO Innovation Asia Staff, 12 June 2012

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Two weeks after China’s anti-graft watchdog detained Yang Kun, Deputy Head and Executive Director of the country’s third-largest bank, Agricultural Bank of China, another bank executive has also been arrested. The President of the Postal Savings Bank of China (PSBC), Tao Liming, is “assisting an investigation by relevant authorities into a personal ‘economic problem’,” PSBC, the nation’s seventh largest lender by assets, said in an 11 June announcement.

Some analysts regard the spate of arrests as a sign that China is serious about cleaning up the banking system, whose proper functioning is crucial to economic and business growth. A number of mainland banks have long been suspected of making reckless loans and allowing top officials to misappropriate assets.

“It is no surprise that senior bankers were found to have committed economic crimes,” Guo Tianyong, a professor at the Central University of Finance and Economics, told the South China Morning Post. “The root cause lies in the massive power granted to them without sufficient supervision on them.”

However, other people familiar with the investigations speculate that the arrests are part of the jockeying for plum posts in the once-in-a-decade reshuffle of the country’s top leadership. The 18th National Congress of the Communist Party of China will be held later this year.

More arrests are expected. The PSBC announcement said another official from the bank's fund operation department, Chen Hongping, is also assisting investigators. Tao, his superior, has been put under shuanggui, a disciplinary system used against senior government officials in China, a person close to the PSBC told the Post, but no other details were available.

The newspaper’s sources said Tao and Chen were found to have issued illegal loans to clients to book illicit gains and to have misused the bank’s assets.

Separately, Chinese financial magazine Caixin and other media outlets report that Zhuang Yonghui, former chairman of Yantai Bank, was recently questioned on suspicion that he embezzled bank funds. That probe is said to have resulted in the detention of more than a dozen people. Hong Kong's Hang Seng Bank is the largest shareholder in Yantai Bank, with a 20 % stake.

Tao was appointed president of PSBC in 2007 after Beijing separated the banking unit of the State Postal Bureau from the postal authorities.

The PSBC went from being a limited liability company to a joint stock company earlier this year. It has more than 500 million clients, as well as assets exceeding 4 trillion yuan (US$634.92 billion).

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