The Bank of China (BOC) said Monday that a fraud case at one of its branches in northeast China would have no impact on its initial public offering (IPO) later this year.

Spokesman Wang Zhaowen said the case at the Hesongjie Sub-branch in Heilongjiang Province should not affect the group as a whole.

"The fraud case, which involves hundreds of millions of yuan and several companies including the Shanghai-listed Northeast Expressway Co Ltd, has been under investigation," Wang told a press conference.

Gao Shan, who was previously the head of the sub-branch, is suspected of being involved in the crime, said the spokesman.

Media reports last week claimed Gao vanished following the disappearance of 290 million yuan (US$34.9 million), which was deposited by Northeast Expressway Co Ltd.

Deposits by other companies, amounting to as much as 700 million yuan (US$84.3 million), also vanished.

But Wang refused to confirm the exact amount of money or the number of firms involved in the case.

"The fraud case reflects that our bank's internal control mechanism and risk control system are far from perfect," he said.

The China Banking Regulatory Commission, the industry's watchdog, said yesterday the case, which caused the Bank of China serious losses, exposed its weak management and control of its branches.

The commission required the bank to find the detailed reasons for the case, from the aspects of the management system and its mechanisms.

"The bank should strengthen its reforms and improve its risk-management mechanism," it said.

Wang said reforms would hopefully prevent fraud from recurring.

"We are reshuffling ourselves and preparing for the final IPO," he said.

But the time and venue for the IPO have yet to be set.

The spokesman added that the bank is still in talks with a number of company investors on the sale of stakes, he said.

The bank, which won a US$22.5 billion capital injection from the government in December 2003, was chosen by the central government as a pilot project to turn it into a joint-stock bank.

The bank reorganized itself into a joint-stock company in August, following the establishment of the Bank of China Limited.

Wang pointed out that the bank's overall business performance was good last year.

"We realized all the business targets set at the beginning of the year," he said.

The figures will be released after they are audited, in accordance with the requirements of the authorities, he said.

Bank President Li Lihui said earlier that its operating profit was 53.55 billion yuan (US$6.5 billion) during the first 10 months of last year, a year-on-year increase of 22 percent.

By the end of October, the bank's outstanding amount of bad assets stood at 96.4 billion yuan (US$11.6 billion), a decline of 250 billion yuan (US$30.1 billion) from the beginning of the year and 18.5 billion yuan (US$2.2 billion) from the end of June.

Its bad assets ratio was 4.55 percent by the end of October, a drop of 0.91 percentage points from the end of June and 11.73 percentage points from the beginning of the year.

(China Daily February 1, 2005)