Bank of China said last night Hong Kong authorities are investigating a suspect fraud case concerning the HK$1.77 billion loan the bank's Hong Kong subsidiary issued to New Nongkai Global Investment Ltd.

"Relevant law enforcement agencies in Hong Kong are conducting an investigation into a suspected fraud case which involves one loan customer of Bank of China (Hong Kong) Ltd," the bank's spokesman Wang Zhaowen said in a statement. "BOC and BOC (Hong Kong) are directing active and full-scaled support and assistance to the investigation."

In June 2002, BOC (Hong Kong) extended a HK$1.77 billion loan to New Nongkai, owned by 42-year-old Shanghai tycoon Zhou Zhengyi who is also known as Chau Ching-ngai in Hong Kong. Currently, the outstanding value of the loan is HK$740 million, according to the statement.

"The loan was granted in accordance with the internal risk management procedures of BOC (Hong Kong) and it was secured with certain risk preventive measures," Wang said.

To safeguard BOC (Hong Kong)'s asset and the interest of its shareholders, BOC (Hong Kong) has pressed New Nongkai for repayment and has received the order from the High Court of Hong Kong to take over New Nongkai, the statement said.

"Based on information available so far, the New Nongkai loan shall not have major adverse impact on the financial position of BOC (Hong Kong)," it said.

The overseas flagship of China's second-largest lender also said that its board's Audit Committee will follow up the issue and thoroughly examine its credit extension procedures, risk management and internal control.

Wang said the head office in Beijing has noticed recent media reports about Liu Jinbao, the former vice chairman and chief executive of BOC (Hong Kong) who is allegedly involved with "a particular loan customer" during his terms in Hong Kong and mainland.

"The issue is being investigated," he said.

The statement came after Hong Kong's banking regulator said the lender should clarify the reasons for Liu's recall to Beijing's headquarters last month.

Liu is being investigated for loans made when he oversaw the Bank of China's Shanghai Branch between 1994 to 1997 and when he ran the Hong Kong business, according to earlier media reports.

Earlier this week, Shanghai spokeswoman Jiao Yang said that investigations are underway into Shanghai Nongkai Development Group, also owned by Zhou.

At a meeting of the Standing Committee of the Chinese Communist Party Shanghai Committee yesterday, Party Secretary Chen Liangyu said Shanghai will cooperate with related departments in the "extensive investigations" of Nongkai Group and Wantai Group, as required by the central government.

"We should strive to keep Shanghai's healthy economic development and maintain the social stability," he said

On its Website, Wantai Group said it was established 1994 and developed several real estate projects in Shanghai. The company's subsidiary, Sun Man Tai Holding Company Ltd, is listed in Hong Kong.

Trading of Sun Man Tai shares were suspended in Hong Kong yesterday after the Standard and other Hong Kong newspapers reported its owner Qian Yongwei was being questioned in Shanghai about more than 1.3 billion yuan in loans obtained from the Bank of China's Shanghai Branch.

Sun Man Tai said its shares were halted pending "an announcement in relation to price-sensitive information."

(Eastday.com June 7, 2003)