On June 28, the National Audit Office released the Auditing Report on the 2004 Central Budget Implementation and Other Fiscal Expenditures, which revealed the problems of China Construction Bank (CCB) in the process of stripping off the non-performing loans (NPL) and disclosed the irregularities of CCB’s Hubei Zaoyang sub-branch in stripping off NPL in June 2000. On June 29, an official of CCB says that the irregularities seriously violate the policies of NPL disposal formulated by the central government and CCB and breach the principle of complying with regulations and laws, honesty and credibility consistently advocated by the bank. The bank’s Headquarters will seriously investigate and dispose those irregularities. As to the irregular stripping-off of NPL by the Hubei Zaoyang sub-branch, the Headquarters has sent two joint inspection groups last year and this year respectively to Hubei for field inspections and supervision and ordered the Hubei provincial branch to quickly investigate the problems and find and seriously punish those who are responsible. Currently the efforts to identify the responsibilities of staffs involved are under way.

The official said that CCB pays great attention to the problems discovered by the National Audit Office. On May 24, 2005, CCB issued an urgent notification to all its branches, requiring them to make in-depth inspections on the problems involving CCB disclosed by the National Audit Office when auditing the financial asset management companies, ensure to accurately affix the responsibilities and seriously punish those who are responsible on a case-to-case basis. The Headquarters sets up a special inspection group led by the Risk Management Department and composed of staffs from the Auditing Department, Planning and Financial Department, Disciplinary and Supervisory Department, and Special Assets Resolution Department. It also requires the presidents of all its branches to take charge of the inspection and choose staffs with a strong sense of responsibility, rich skills and deep understanding of policies to form a special inspection and accountability group.

According to the official, the inspection adopts three methods: first, the branches which are capable of making independent investigation must do it by themselves. If they fail to clarify the problems involving the asset management companies, they should consult the companies concerned and set up a joint inspection group and reach agreement on the conclusions; second, in the process of investigation, the branches should take the initiative to communicate with the local special inspectors’ office of the National Audit Office and the China Banking Regulatory Commission (CBRC) and reach consensus with them; third, the branches should carefully analyze the external and internal root causes of the problems one by one and seriously punish those who are responsible.

Since the beginning of this year CCB has conducted the special campaign to cut law cases with the focus on strengthening institutional construction throughout the bank so as to realize “four drops” of law cases (i.e. drop of case number, drop of money involved, drop of serious cases and drop of new cases), increase the skills, moral and consciousness of observing laws and regulations of the employees, basically eliminate the problems of continuous violation of rules, establish the sense of following rules and laws, doing business according to procedures and operating in line with laws and regulations, enhance the internal control and risk management，raise the operational and management performance in accordance with laws and regulations and build the capacity of investigating and preventing law cases.

The short-term priority of the “Special Campaign of Reducing Law Cases” is the special examination to prevent violating laws and regulations. The sub-branches of CCB’s provincial branches should take the lead to make self-examination on the implementation of major business rules and regulations including the organizational control, authorization and credit line, credit asset management, capital management, accounting and financial management, computer system management and internal audit. Focus should be put on whether the rules and regulations cover all the departments, business sectors, job positions and operational procedures, whether all the business units have formulated detailed operational processes and rules, whether the rules and regulations are effectively implemented, whether the incidents and problems, if any, are solved effectively and in a timely manner and whether the job position responsibility system is clearly defined and effective and implemented faithfully. Meanwhile, the bank also lists the major root causes of law cases identified in the Rules on the Handling of Law Cases of Commercial Banks and Rural Credit Cooperatives of China Banking Regulatory Commission (CBRC), major job positions and staffs, new business and services as the main examination items and conducts special examination on the key job positions and staffs such as credit, accountants and cashiers.