China Construction Bank (CCB) denied a report by The New York Times that the
bank had intentionally hid US$3 billion in bad loans before it went public last
In a statement posted on its official website last Wednesday, the bank said
the accusation was groundless.
In an article on non-performing loans in Chinese banks, The New York Times
quoted an unidentified former CCB risk adviser as saying that up to US$3 billion
in bad loans had been intentionally hidden from outside auditors months before
the bank's first sale of stock to public investors in October last year.
In its denial, the CCB stressed that it had strictly followed domestic and
international reporting regulations and had released all information in
accordance with relevant regulations before it went public.
"Also, our bank has established strict loan-category and categorization
procedures. The outside auditor KPMG audited the prospectus, including the
fiscal report. KPMG's audit report was unreserved," said the statement.
"The bank is willing to provide accurate information to stockholders and the
public, according to market rules and regulations. And the bank will also take
legal action against defamation," said the statement.
Meanwhile, analysts described the accusation as illogical.
"In addition to KPMG, Morgan Stanley, as the major sales agent for CCB's IPO
(initial public offering), also audited the bank carefully for its own benefit.
US$3 billion is not a small figure that would be easy to conceal from these
leading auditors," an analyst was quoted by the Economic Observer as saying.
In response to queries from foreign investors wondering why CCB's bad loan
ratio had dropped so sharply between 2002 and 2004, analysts said that the
country had spent almost 460 billion yuan (US$57.5 billion) to resolve the bad
assets plaguing the bank.
The 21st Century Economic Report identified the unnamed risk adviser quoted
by the New York Times as Deng Kai, 44, a graduate of Peking University's Maths
Department who went on to earn a doctoral degree from Indiana State University
in the United States.
The newspaper countered Deng's claims that he had been a senior official at
Citibank and HSBC, reporting that he had only been an ordinary staff member at
the two banks before joining the CCB through a personal relationship with former
CCB head Zhang Enzhao. Zhang was recently sentenced to 15 years in prison for
The New York Times reported that CCB fired Deng for his statements to the
press, but bank officials insisted they had dismissed him because he had faked
evidence that he had submitted in connection with sick leave. They also said he
had done poorly in the bank's annual performance evaluation.
The CCB, one of China's four major State-owned commercial banks, went public
in Hong Kong in October last year. It raised US$8 billion in its initial public
It was the first of the big four along with Bank of China, the Agricultural
Bank of China and the Industrial and Commercial Bank of China to list its shares