PracticeAccounting FirmsE&Y answers Chinese auditing call

E&Y answers Chinese auditing call

Industrial and Commercial Bank of China, the Asian superpower's biggest bank, has called on Ernst & Young to audit its books amid concerns about the high rate of non-performing loans in the country.

E&Y will audit about a fifth of ICBC’s business, the first time the bank has used foreign auditors for its accounts.

ICBC has been rocked by non-performing loans in recent years and in 1999 it formed Huarong Asset Management Corporation to acquire distressed assets and loans from the bank.

Ernst & Young, advisors to ICBC Huarong Asset Management on the sale of bad loans, will send a team of more than 100 people to audit the bank’s operations in Shanghai and in Zhejiang province, according to the firm’s Far East chairman Anthony Wu.

Wu stressed the company has not been asked to look for specific irregularities at the branches of the bank. Huarong first engaged E&Y last year to help it bring to market a $2bn portfolio of non-performing loans.

Last December, a Goldman Sachs sponsored investment fund agreed to purchase non-performing loans from the corporation with a face value of approximately $240m in a structured transaction.

‘Everything is to be done in accordance with international practice,’ Wu said. ‘We may come up with some recommendations on internal controls and risk management.’

In all, it is estimated about a quarter of recent Chinese loans have gone bad and the country’s banks are seeking outside help in cleaning their books before they try and sell shares overseas. Across Asia, the estimated amount of non-performing loans held by financial institutions have risen by 33% in the past two years totalling around $2000bn.

Chinese banks believe that the presence of international auditors may boost investor confidence after a spate of probes into Chinese lenders’ business practices.

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