Postal Savings Bank’s President Under Investigation in China

Postal Savings Bank of China Co.’s president is under investigation, the second senior Chinese banker targeted by authorities in less than a month as the government steps up a crackdown on corruption and fraud.

President Tao Liming and Chen Hongping, a director in the treasury operations department, are assisting officials after coming under “suspicion of personal economic problems,” Beijing-based Postal Savings, which operates the nation’s largest bank branch network, said in a statement on its website yesterday, without elaborating.

China’s Communist Party has intensified a clampdown on corruption after banks doled out an unprecedented 25 trillion yuan ($3.9 trillion) of loans in the past three years, sparking concerns that bad loans will increase. Agricultural Bank of China Ltd. (601288), the nation’s fourth-largest lender, said May 30 that Vice President Yang Kun was helping a probe by authorities.

“The government is trying to clean up the banks,” Warren Blight, a Hong Kong-based analyst at Keefe Bruyette & Woods Inc., said by telephone. “Whether it comes from economic slowdown or some shady dealings or probably a combination of both,” bad loans will probably climb, he said.

China’s government-controlled banks, which were transformed from almost-insolvent institutions with spiraling defaults into profitable firms with the help of more than $650 billion in bailouts, had promised to improve internal controls to root out fraud and corruption after listing their shares.

Shares Drop

Agricultural Bank (1288) fell 1.2 percent to HK$2.93 as of 3:30 p.m. in Hong Kong, extending this year’s decline to 12.3 percent. Industrial & Commercial Bank of China (601398) Ltd., the nation’s largest, dropped 0.9 percent. The benchmark Hang Seng Index lost 0.3 percent, narrowing this year’s gain to 2.5 percent.

The reports of the probes may curb investors’ appetite for Chinese banking stocks, said Sheng Nan, a Hong Kong-based analyst at CCB International Securities Ltd. Still, “it’s not like the entire banking industry is facing the same problem.”

Agricultural Bank last month said Yang was assisting authorities with “certain investigations,” without elaborating. Yang’s conduct is being examined by the Central Commission for Discipline Inspection, Caixin magazine reported on its website, citing people it didn’t identify. The commission is responsible for curbing corruption and other crimes by party members.

Illegal Loans

Postal Savings’ Tao has been placed under “shuanggui,” a form of detention imposed on Communist Party officials, Caixin reported this week. Tao and Chen were found to have issued illegal loans to clients to book illicit gains and to have misused assets, the South China Morning Post said today, citing sources it didn’t identify.

The bank’s operations haven’t been affected, according to its statement.

Willy Wo-Lap Lam, an adjunct professor of history at the Chinese University of Hong Kong, said the recent investigations of senior bankers may have been triggered by public outcry over the nation’s biggest banks making profits “too easily.” Premier Wen Jiabao in April called for the “monopoly” of big lenders to be broken.

Postal Savings Bank, wholly owned by the China Post Group, was established in 2007 as part of a restructuring of China’s postal services to separate commercial and regulatory functions. With over 38,000 outlets nationwide and 4 trillion yuan of assets, Postal Savings Bank became a shareholding company in February, paving its way to sell shares to the public for the first time.

Several senior bank executives have been sentenced to prison on corruption charges in recent years. Liu Jinbao, former president of BOC Hong Kong (2388) (Holdings) Ltd., was given a suspended death sentence for graft in August 2005. Zhang Enzhao, ex-chairman of China Construction Bank Corp. (939), was jailed in November 2006 for accepting bribes.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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