China lender lifts lid on bill-financing fraud worth 1b yuanBusiness | 29 Jan 2016
China CITIC Bank Corp (0998), a unit of the nation's largest investment conglomerate, has uncovered a fraud case at its bill-financing business involving about one billion yuan (HK$1.19 billion) last year.
Sources said an employee at the Beijing-based bank's Lanzhou city branch allegedly conspired with others between May and July to falsify documents that were used as collateral to obtain a banker's acceptance.
The acceptance was later sold on several times at discounted prices, bringing total exposure to 900 million yuan to one billion yuan.
The proceeds were invested in stocks, and the fraud was uncovered after Chinese equities slumped.
The bill-financing business has doubled in value to 4.6 trillion yuan in the past two years.
They are used for short-term corporate lending, but have often been used to fund speculative investment in real estate and shares.
Shanghai-based Sinolink Securities analyst Ma Kunpeng said banks have sometimes used the bills to inflate their balance sheets to meet regulatory requirements.
"Bill financing is a business rampant with loopholes and operational risks, and is taken advantage of by many banks for regulatory arbitrage," he said.
"These are not isolated cases. The regulator has tried to fix it many times but failed each and every time." Agricultural Bank of China (1288), the nation's third- largest lender, revealed last week a 3.9 billion yuan case of bill fraud at its Beijing branch.
AgBank yesterday said it had disconnected all its accounts from peer-to-peer lending platforms due to recent fraud cases.
"Some third-party payment institutions provide P2P platforms with the accesses to accounts at our bank. This allows for the risk to spread to our customers, which has a huge adverse impact on our reputation," the lender said. STAFF REPORTER AND BLOOMBERG