The scandal could not have come at a worse time for the Bank of China (BOC). Earlier this month, mainland media reported businessman Zhu Dequan - with assistance from BOC officials - fraudulently obtained 914.6 million yuan in bank bills from a sub-branch of China's second-largest lender.
This followed the sensational case in which two former managers stand accused of embezzling US$485 million from the bank.
As the BOC prepares for Hong Kong listing in June, it is not the type of publicity the lender can afford. The fraud cases highlight the risk of investing in a bank sector fraught with problem loans, poor risk management and lack of internal controls.
While the mainland has done a great deal of work to spruce up its lenders for public listing by reducing non-performing loans (NPLs) and tightening internal controls, some industry watchers described the changes as 'cosmetic'.
Mainland banks have yet to make technology investments that would make fraud and other financial risks easier to spot.
What is needed is an overhaul of the paper-based transactions and other antiquated processes that simplify the job of hiding fraud. The most recent BOC scam was discovered only after a rotation of frontline employees.
'They have cleaned up a lot of their NPLs, but how do you prevent new NPLs from coming onto the books?' said Douglas Jaffe, senior research manager at Financial Insights.
