Global auditing firm Ernst and Young has withdrawn a report saying China's
non-performing loans (NPLs) totaled over 900 billion dollars, apologizing for
what it called an "erroneous" publication.
Global auditing firm Ernst and Young has
withdrawn a report saying China's non-performing loans (NPLs) totaled over
900 billion dollars, apologizing for what it called an "erroneous"
"As it contains
errors, we are withdrawing the report," the firm said in a statement. "We
apologize that this erroneous report was issued. We sincerely regret any
misleading views that the report conveyed."
The size of China's bad loans is a figure of immense importance, as it serves
as a measure of the banking sector's financial health.
Ernst and Young's decision came after China's central bank said the report,
which claimed NPLs for the four large state-owned commercial banks totaled 358
billion dollars, "seriously distorted" the actual situation.
In its statement retracting the Non-Performing Loan Report, issued on May 3,
Ernst and Young said a 911-billion-dollar estimate for China's NPLs had been
based on the wrong assumptions.
"Throughout the report this amount was identified as a potential future
amount that includes NPLs totaling approximately 358 billion dollars for the big
four commercial banks," it said.
"Upon further research, Ernst and Young Global finds that this number cannot
be supported, and believes it to be factually erroneous."
It said the report had not gone through the normal internal review and
approval process before it was released to the public.
The central bank, which was not immediately available for comment Monday, had
adopted unusually harsh vocabulary to refute Ernst and Young's claims in a
statement posted on its website late last week.
"The report not only seriously distorts the actual assets quality of the
Chinese banking sector," the People's Bank of China website quoted an unnamed
official as saying.
"Its statements on several financial institutions are also seriously wrong
and its conclusions are absurd and incomprehensible."
Ernst and Young said the firm was alerted to the mistake by its China branch,
but said it had not been approached by the Chinese central bank or other Chinese
authorities on the errors.
"Quality and integrity is what we believe in, and we have to do it right,"
said Annesa Leung, a spokeswoman for Ernst and Young in Hong Kong.
The company hoped the mistake would not impact the firm's business in China,
Ernst and Young's report, widely quoted earlier this month, came as foreign
institutions continued to move into the Chinese banking sector and as the
nation's big banks sought a higher international profile.
China's monetary authorities say domestic commercial banks' non-performing
loans ratio at the end of the first quarter of this year stood at eight percent
or about 1.31 trillion yuan (164 billion dollars).
For the four large state-owned commercial banks, the China Banking Regulatory
Commission has set NPLs at 133 billion dollars.
This, Ernst and Young said, is "computed on a regulatory and accounting
standard based on objective evidence of impairment."
It said that Ernst and Young China's own involvement as auditor for one of
those four commercial banks suggested to it that the overall figure for the four
"Their audit, performed under international standards of auditing... supports
the banks contribution to the total of 133 billion dollars for all four of the
commercial banks," it said.