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Bank of China to List Despite Concerns
Bank of China, the second largest lender in that country is planning to raise up to $US9.8 billion in a Hong Kong listing next month but is struggling to overcome its legacy of corruption and bad management practices reports Bloomberg.
With $US13 billion worth of bad loans, numerous fraud investigations and an outdated computer system, the Bank of China's performance is said to be another example of how the country's 10 per cent economic growth glosses over major flaws in the state run economy.
The Bloomberg report stated that even as the banks in China court international investors they have not yet overcome a legacy of unchecked lending to state companies and lax internal controls. The report stated the four biggest state-owned lenders still don't adjust loan rates based on borrowers' credit risk and government figures say the banks remain burdened with a combined $137 billion of bad loans.
John Koh, Daiwa Asset Management Ltd in Hong Kong, told Bloomberg that the Bank of China has had more scandals than others, "which they see may affect the performance of the share price."
Last year the bank's former Vice President was sentenced for embezzling 14.48 million yuan while the bank's former President (1994-2000) was found guilty for pocketing millions in bribes and gifts. The Bank of China was also hit when three former Bank of China branch managers siphoned 4 billion yuan into private accounts from 1991 to 2004. The country's biggest banking scandal.
In the lead up to the listing a spokesperson for China Bank told Bloomberg that his company has been attempting to clamp down on fraud and implementing improvements of its management. One of the foreign countries bought stakes in the bank, the Royal Bank of Scotland; say the potential growth in China's banking market outweighs the risks.
However Chris Ruffle, a Shanghai-based fund manager and a Bank of China customer, won't buy any shares in the bank. "Banks are the weakest part of the Chinese economic system, so buying into them doesn't make sense to me."
"They're doing the right thing to list and bring in foreign investors, but they've got a long, long way to go," he says. "I don't really want to give my money to help them do it."
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