China's Banks Have $3.2bn Exposure to Qingdao Fraud Probe Companies

China's banking sector has around 20 billion yuan ($3.2bn, £1.8bn, €2.4bn) of exposure to the companies at the centre a massive fraud probe in the eastern port city of Qingdao.

Two government officials told Bloomberg that Bank of Communications Co., China's fifth largest lender, is suing Decheng Mining and its parent company.

Deching Mining is accused of counting metals stockpiles multiple times in order to secure additional financing.

China's booming commodities financing business is at the heart of the scandal, leading to companies stockpiling at warehouses at ports. These are less well regulated than other warehouses in the country.

While using metals, or any commodities, as collateral in order to obtain finance is legal and common in China, issuing receipts to mortgage an asset multiple times is fraud.

Deching Mining is accused of pledging the same metals stockpile three times in order to secure 2.7bn yuan worth of loans, Bloomberg reported, citing a person briefed on the matter.

Standard Chartered Plc has launched a lawsuit against the company's owner, Chen Jihong, for $35.6m. Standard Bank Group began legal proceedings in July, in order to "protect its position" on aluminium worth $170m, that is held in Qingdao warehouses.

The ongoing probe has accelerated copper sales and caused dwindling stocks, as banks were unwilling to extend financing deals, a Bloomberg survey showed.