China govt begins Bank of Communications audit
(AP)
Updated: 2006-03-06 16:17

China's top auditor on Monday began a routine review of Bank of Communications , focusing on loan quality of the country's first bank listed outside the mainland, according to sources familiar with the matter.

The National Audit Office assigned teams of government auditors to work with four branches in Beijing, Guangzhou, Zhengzhou and Shanghai as well as with its Shanghai headquarters, they said.

A spokeswoman for the bank confirmed on Monday that an audit was beginning this week but declined to give details.

The audit of China's fifth-largest commercial lender could last at least three to four months, the sources said.

"It's the first time the National Audit Office has gone to audit Bank of Communications since its Hong Kong listing in June," said one banking source.

The bank hired PricewaterhouseCoopers in 2005 as its external auditor in preparation for its Hong Kong listing. But the National Audit Office will have a different focus, the source added.

"PricewaterhouseCoopers's audit was aimed at helping the bank successfully list in Hong Kong, while the National Audit Office is looking for any illegal use of government funds for loans and corporate credits," said an auditing source familiar with the situation.

In the first 11 months of 2005, the audit office found cases involving nearly $40 billion of state funds that had been illegally used by state-owned financial firms and industrial enterprises.

State media, reporting the audit office findings, did not detail the misappropriations.

The Bank of Communications audit would specifically look at mortgages and corporate loans and any potential wrongdoing by bank staff, the sources said.

The bank, 19.9 percent owned by global lender HSBC Holdings Plc. , earned 6.73 billion yuan ($837.4 million) in the first nine months of the year, with loan growth of nearly 20 percent from a year earlier.

The bank expects to report its 2005 full-year financial results in late March, but its spokeswoman said on Monday that any possible results from the official audit would not affect its 2005 earnings.

"If serious problems were found, then the length and branch coverage of National Audit Office's audit would be extended," said one source. ($1=8.0367 yuan)