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Last Updated: Thursday, 28 June 2007, 10:22 GMT 11:22 UK
Loan violations at Chinese banks
Man in front of collage of yuan notes
The authorities are trying to prevent increased speculation
Officials have found mismanagement and misconduct worth 15.5bn yuan ($2bn; 1bn) at three of China's big banks, the country's auditor general said.

It comes at a time when many banks are raising money from foreign investors, and the country is trying to modernise its financial system.

The probe found violations of law or regulations at Bank of China, Bank of Communications, and Merchants Bank.

Violations included lending money for real estate development.

The government has made efforts to slow speculation in the real estate industry, and has taken moves to prevent speculation on the stock market too.

Last week, China's bank regulator announced it was punishing eight banks for making improper loans which were used by two state organisations to speculate in stocks and real estate.

Investigations at other banks have revealed embezzlement, bribery, or violations of regulations on the size and purpose of loans.

On this latest occasion the auditor did not single out any bank employees or say whether the mishandled money was recovered.

China's banking sector was the subject of a huge bail-out by the government in 2002 after bad loans to businesses mushroomed.

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