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China to offer liquidity to Baoshang Bank

BEIJING (Reuters) - China's central bank said on Sunday that it would offer liquidity to Inner Mongolia-based Baoshang Bank, which the country's financial regulators have said they would take over due to the serious credit risks it poses.

The People's Bank of China (PBOC) also said in a statement that it and the China Banking and Insurance Regulatory Commission (CBIRC) would give more policy support to improve small- and mid-sized banks' corporate governance.

Baoshang Bank came to prominence after its key stakeholder Tomorrow Holdings was targeted in a government crackdown on systemic risks posed by financial conglomerates.

The rare takeover, the first in nearly two decades, also highlights the long struggle of some smaller regional lenders in China, which suffer from deteriorating asset qualities, inadequate capital buffers, and poor internal controls and corporate governance.

There is concern that these feeble lenders will add to the vulnerability of country's financial system amid the economic slowdown.

"After the takeover, PBOC and CBIRC will offer liquidity support, [and] timely and sufficient funds to ensure that the bank's payment system is operating smoothly," the PBOC said.

"From the situation of the past two days, Baoshang Bank has sufficient funding in its local branches. Depositors can take out money freely and smoothly," it said.

The central bank also said it would guarantee all principal and interest of corporate deposits and interbank liabilities below 50 million yuan, and that the handling of those above 50 million yuan could be negotiated.

The PBOC and CBIRC said on Friday that control of Baoshang will last for a year, and that China Construction Bank, (CCB) will be entrusted to handle the business operations of the small lender, based in the industrial city of Baotou.

Baoshang had a total of 156.5 billion yuan ($22.68 billion) of outstanding loans by the end of 2016, a 65% jump from the end of 2014, according to the bank's last filing on its assets and liabilities on its website. Its non-performing loan ratio was at 1.68% as of December 2016.

(Reporting by Michael Martina, Hou Xiangming and Leng Cheng in Beijing; Editing by Shri Navaratnam)

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