Hidden Risk

Abstract

Using self-reported data from banks in mainland China, I apply a technique used in forensic accounting based on Benford’s Law to detect fraudulent manipulation of non-performing loan (NPL) figures.  I find large data anomalies consistent with false reporting in mainland banks that do not appear in an identically structured survey of Hong Kong banks.  A comparison of different types of data from mainland banks shows no statistically significant anomalies in data for total deposits from customers, operating expenses, net interest income, or non-interest income.