The latest scandal at a Chinese bank was revealed in the transcript of a speech made to staff by BoCom chairman Jiang Chaoliang and obtained by Bloomberg.

Jiang was also quoted as saying BoCom has ``not fundamentally improved'' its risk management systems. He added: ``The situation is still very tough. Fresh batches of bad loans may still emerge after the clean-up.''

BoCom, like its domestic rivals, is struggling to wipe clean its slate after a half-century spent lending to state firms at government behest. The past year had seemed a good one for BoCom, which cleared billions of yuan of bad loans off its books, accepted a small state bailout, and sold a 19.9 percent stake to British-based lender HSBC for HK$13.65 billion.

The fresh revelations, which follow on the heels of similar corruption and embezzlement scandals at other big state-owned banks, underscore just how far mainland banks, including BoCom, have to go.

``[BoCom] is not a very competitive bank. It cleaned up [its] balance sheet last year and sold a stake to HSBC, but it still has poor internal management and credit risk controls,'' said Julia Fan, a banking analyst at China International Capital Corp (CICC).

``They are restructuring step-by-step, but they cannot become internationally competitive overnight or over a period of one year,'' Fan added. ``It may take them several years for this to happen.''

China's state banks have had a miserable month. Corruption cases involving more than US$100 million (HK$780 million) have come to light since March 1, including the arrest of a Bank of China official in connection with a 640 million yuan loan fraud and the sacking of Construction Bank chief Zhang Enzhao.

The latest transgression came when authorities in central Henan province arrested four officials at Agricultural Bank, China's most troubled large bank, for embezzling 7 million yuan of bank funds.

Jiang's comments are a damning indictment of a bank that in other ways was looking better than most of its bigger state-owned brethren. Thanks to a massive disposal program in 2004, non-performing loans stood at just 2.9 percent of total lending at the end of last year - lower than that of any of the Big Four lenders.

But mainland banking rules contain quirks, including one that classifies a loan as ``good'' until it becomes unrecoverable.

And there's a nagging worry that the amount of non-performing loans at Chinese banks could soon shoot up again, as government efforts to slow the economy force some borrowers to the brink. elliot.wilson@singtaonewscorp.com