China Construction Bank Will Suffer Losses In Bankrupt Firm-Paper

China Construction Bank , the world’s No.2 bank by market value, will suffer “some losses” from its 3 billion yuan ($470.74 million) exposure to a private company that filed for bankruptcy, the bank’s vice president was quoted as saying on Wednesday.

Zhu Hongbo was quoted by the Financial News, a paper run by China’s central bank, as saying the bank holds 3 billion yuan of debt in Zhongjiang Group, of which 98 percent is guaranteed or backed by collateral, and 1.6 billion yuan in loans.

Zhongjiang, based in China’s entrepreneurial hub of Zhejiang, is a conglomerate with businesses in investment, property and chemicals. Its decline highlights the difficulties companies face as they fight China’s worst economic downturn in three years and underscores the credit risks facing Chinese banks as struggling businesses default.

“We will have some losses, but we had already set aside provisions last year,” Zhu was quoted as saying on Wednesday.

Zhu said the Zhongjiang case showed the bank’s risk management system was flawed on a branch level, but said risks around Zhongjiang can be controlled and that the Zhejiang government is restructuring Zhongjiang.

Xinhua reported in June that the Zhejiang police had arrested Yu Zhongjiang, the owner of the company, on suspicion that he had illegally collected public funds.

Reuters