Banking & Finance

Another one bites the dust…

President of Postal Savings Bank arrested – IPO plans likely to suffer

Another one bites the dust…

Lost his post: Tao Liming

When the president of the Postal Savings Bank of China Tao Liming was first detained in June last year, the country’s fifth-largest bank by deposits said that he was under investigation for “personal economic problems”, reports the Oriental Morning Post.

The charge made it sound like Tao was involved in a minor infraction, like failing to pay his credit card bill. But when he was formally arrested in late December, the charge sheet turned out to be much more serious, including bribery and illegal fundraising. The Financial Times says Tao has now been formally charged with corruption.

Tao’s downfall stemmed from his relationship with Chen Mingxian, the retired deputy director of Hunan province’s Department of Transportation. Chen was a major figure in bringing expressways to Hunan, but when he was also detained in March last year, provincial media ran a number of stories alleging that he had encouraged cronyism among the local transport administration.

It turns out that Tao was connected to the case. China Business reports that Postal Bank lent Chen’s Hunan Expressway Bureau Rmb5 billion ($800 million) to part-finance a Rmb20 billion project. As part of the loan approval process Tao Liming’s younger brother is alleged to have asked for Rmb190 million. Tao himself is also alleged to have made other “illegal loans with bank money for personal benefit” say the Financial Times.

Century Weekly reckons the probe into Tao is linked to other high profile investigations, including the arrest of Xu Ming, the chairman of conglomerate Dalian Shide Group, who was dragged down by his close connection with disgraced politician Bo Xilai (see WiC145).

This would be bad news for any bank, but it is particularly bad for Postal Bank, which is looking to go public. Early last year, it got permission to convert into a joint company in preparation for a planned Rmb9.98 billion Shanghai IPO (see WiC148).

Even before Tao’s arrest, there were concerns over Postal Bank’s ambitious expansion, as it moved away from its more conservative traditional business of taking deposits and storing them at the central bank. One investment banker speaking to Century Weekly said that there were concerns relating to Postal Bank’s “lending capacity and its level of risk control” and last year WiC reported on similar fears as the bank expanded its lending network, in part by giving greater autonomy to lower level branches to grant loans (see WiC140).

The fear was that rapid growth in the loan business might lead to erratic lending practices, especially in the bank’s early days as a commercial operation.

“At that time, the loan business at some grassroot sub-branches was so chaotic that they didn’t even do basic investigations, nor did they complete collateral formalities before loans were issued,” a Postal Bank insider told Global Entrepreneur magazine just after Tao was detained last year.

Loans are also said to have been made by branch managers at below-market rates in return for kickbacks.

Tao’s fall has highlighted problems at the bank, which was founded in 2007 when it was hived off from China Post. A source close to stakeholder China Central Huijin Investments described a messy internal structure. “Board directors appointed by the Ministry of Finance have yet to arrive, and problems are popping up,” he told Century Weekly.

Postal Bank has apparent strengths too. Foremost is a huge branch network covering both urban and rural areas, as well as a deposit base of Rmb4.5 trillion. But for now, it looks as if investors will focus on the well-publicised negatives. With new listings frozen (see WiC177) and over 800 companies now waiting to IPO, it looks unlikely that Postal Bank’s stock market debut will be happening soon.

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