HONG KONG -- China's banking regulator announced on Friday that two local banks in the northeastern province of Liaoning have entered bankruptcy procedures. The cases seem relatively modest, but the careful handling by authorities highlights the latent risks carried by the country's smaller lenders.
The China Banking and Insurance Regulatory Commission (CBIRC) said it has "in principle agreed" to the bankruptcy applications made by Liaoyang Rural Commercial Bank and Liaoning Taizehe Village Bank. In two separate but virtually identical announcements on its official webpage, the regulator demanded both banks to "strictly abide by the relevant laws and regulations in conducting follow-up works."
The commission also said the banks are required to report in a timely manner "if any serious situation occurs."
Local financial regulators in Liaoning provided a few more details about the situation. According to the joint statement issued on Friday, the banks were engaged in "operations that violated the laws and regulations," and they have "gravely destroyed local financial orders, bringing about serious risks."
The statement neither elaborated on what kind of illegal activities have occurred nor on what sort of situation is emerging on the ground.
Interestingly, the local regulators began taking action much earlier than the official announcements on Friday. The joint statement revealed that all personnel, branches and deposits were being accepted by Shenyang Rural Commercial Bank, another local bank based in the provincial capital Shenyang. Actually, the two statements approving the entrance into bankruptcy proceedings that the CBIRC posted on Friday are dated Aug. 3 and 4, respectively.
The preparedness likely reflects the level of wariness among authorities in the wake of a series of bank runs and instances of social unrest triggered by small, village-level banks in Henan Province that last month refused to allow ordinary depositors to withdraw their own cash. The CBIRC later stepped in to reimburse depositors.
The Liaoning regulators in the Friday statement stressed that "the interests of depositors and other creditors are sufficiently guaranteed."
Elaine Xu, an analyst at Fitch Ratings, pointed out the potential risk involving smaller banks in China. "They generally have weaker profitability and thinner capital buffers than their larger peers because of their smaller franchises, weaker funding profiles and lack of strong shareholder support or linkage with the central government," she wrote in a report published on Monday. According to Fitch, small regional banks account for about 30% of the sector's total assets in China.
In China, bank liquidations are rare. The most recent case came in 2020, when Baoshang Bank, based in Inner Mongolia, was declared insolvent. The bank was controlled by Tomorrow Holding, led by Chinese-Canadian billionaire Xiao Jianhua, who went missing from Hong Kong's Four Seasons Hotel in January 2017 and apparently spirited away to mainland China. Xiao was sentenced to 13 years in prison by a Shanghai court last week on multiple charges, including illegally absorbing public deposits, betraying the use of entrusted property, and the illegal use of funds and bribery. Tomorrow Holding was fined 55.03 billion yuan ($8.01 billion), while Xiao was fined 6.5 million yuan.
https://asia.nikkei.com/Business/Markets/China-debt-crunch/Two-Chinese-local-banks-enter-bankruptcy-procedures....
More banking crisis in china aside from henan? The latest in a long line of bank issues dating back years. Unfortunately, this could coincide with the worst heat wave china has experienced in modern history. Factory shut downs. Massive crop destruction. Drought. As well as other serious issues appear to be plaguing china at the moment. Which is unfortunate as anyone economic slowdown in china and supply chain slowdowns could incur manufacturing delays and supply slow downs for the world's producers. Who rely upon china to provide components, rare earth metals and other exclusive products which are difficult or impossible to obtain anywhere else.
Hopefully china can get their banking issues resolved. Which would help to stabilize what could end up being a faltering global economy. Thankfully evergrande and china's vehicle loan bubble appear to remain intact. I don't think anyone would try to call a bottom at this point. Too much has happened over the last 2 years to make premature calls on events which recently have not been the most optimistic or predictable.
Banking issues have been an ongoing trend in china for a few years now. I remember reading news about chinese bank failures as far back as 2018 - 2019. News of bank failures in china may not be the most relevant. Hopefully, it won't define a negative trend that comes to be too relevant in a negative sense.
