China's banking regulator has pledged to take tougher action to guard against operational risks following the disclosure of shocking crimes involving banks.

Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said all of the country's banks should improve their internal control systems and reduce the number of banking crimes within a year, at the commission's recent high-level meeting on crime, according to a statement released Monday.

The big four state-owned commercial banks, in particular, have all established special teams and reporting systems to explore possible operational loopholes.

The Industrial and Commercial Bank of China, the country's largest lender, has set up 490 special teams with 6,300 employees to examine risks at all local branches across the nation.

The Agricultural Bank of China, another big four bank, has been investigating its 25,000 branches since February.

Analysts say recent banking scandals make banking reform more difficult. China aims to revive bad-loan-ridden State-owned banks and improve the whole industry's competitiveness.

China's banks are under pressure as foreign competitors are poised to flood in when they are allowed unlimited access to the domestic market by the end of 2006, in line with World Trade Organization commitments.

China initiated an unprecedented drive at the end of 2003 when the government injected a combined US$45 billion of foreign reserves into two State banks - the Bank of China and China Construction Bank - to help boost their shareholding reform plans and allow them to debut on overseas stock markets.

Banks have made encouraging progress since reform took off, with each of the big four banks declining bad loans and increasing assets on their books.

Mainland banks reported total assets of 32.88 trillion yuan (US$3.96 trillion) by the end of March, a year-on-year increase of 14 percent, according to CBRC figures.

The frequent occurrence of serious banking crimes is mostly due to the lack of a sound credit system, ineffective investigation measures and weak supervision mechanism.

The CBRC issued a 13-point circular to banks on how to better control operational risks last month.

Liu said it is a mandatory task for banks to strictly comply with all the instructions in the circular, which include setting up rules and regulations on risk controls, strengthening internal checks of local branches, and position shifting of major officials at local financial institutions.

Scandalous crimes have been alarming China's banking sector in recent months. They include fraud at a branch of Agricultural Bank of China at Baotou in Inner Mongolia Autonomous Region, which amounted to 115 million yuan (US$13.9 million) and a typist at the Bank of China fraudulently obtaining US$6 million from the State bank.

In addition to shedding light on banks' operational risks, such scandals also reflect the achievements of banking reforms, as banking supervision is enhanced and banks become more transparent, Tang Shuangning, vice-chairman of the CBRC, said.

The commission has urged banks to rectify their inadequate rules and ineffective inspection procedures, which otherwise may lead to huge losses.

Meanwhile, the commission has also demanded better computer systems for automatically detecting wrongdoing and risks.

(China Daily April 19, 2005)