BEIJING • The Agricultural Bank of China, one of the country's four largest lenders, has said that it could lose as much as 3.915 billion yuan (S$694 million) in what it called a "material risk incident".

The incident occurred at the bank's Beijing branch and involved notes held under a resale agreement, the bank said in a filing on Friday to the Shanghai and Hong Kong stock exchanges.

"The amount exposed to risks is 3.915 billion yuan," it said, adding that police were investigating.

The bank, listed in Shanghai and Hong Kong, did not provide detailed information in the filing on the cause of the loss.

But business magazine Caixin reported that two employees at the bank's Beijing branch were at the centre of the scandal, having illegally sold bills of exchange worth 3.915 billion yuan to an agent in the south-western city of Chongqing, who sold them to another bank.

The bills of exchange work in a similar way to post-dated cheques, which demand one party pay a fixed sum to another in a set period of time, Caixin said.

The two employees, both very young, used money from the sale of the bills to invest in the stock market and suffered huge losses after share prices plunged, Caixin reported.

The Chinese stock market suffered a rout starting on June 12 last year, when the benchmark Shanghai Composite Index peaked at 5,178 points.

The index closed on Friday at 2,916 points.

On Friday, share prices of the Agricultural Bank of China ended 0.65 per cent higher in Shanghai and 1.11 per cent higher in Hong Kong.

XINHUA