China’s Bank Seizure Shocks Lenders, Carries Risks

The Chinese regulators of the country have seized the Baoshang Bank. The China Banking and Insurance Regulatory Commission (CBIRC) will manage the firm for a year, starting from May 24, 2019. Reuters reports that the news follows the bank’s increasing credit risks around the nation.

Small banks such as the Inner Mongolia-based Baoshang firm are known to weave their way around strict lending rules of the country. Bloomberg notes that some of the tactics employed by these institutions include avoiding capital as well as stipulating requirements.

Closer Look on Baoshang

Founded in 1998, the financial institution is partly owned by Tomorrow Holding, a Chinese financial firm. Today, it has more than 8,000 employees.

According to Reuters, the company has 206 outstanding bonds amounting to 73.83 billion yuan. The company has reportedly failed to file or publish annual reports since 2016.

Increased Concerns

The seizure of Baoshang Bank raised concerns from other smaller financial institutions in the country. Bloomberg reports that some lenders and investors have seen a drop in their trading shares. The Harbin Bank from Heilongjiang is reportedly trading 0.34 times the original value, while Shengjing Bank from Liaoning trades at 0.41 times.

In addition to erratic and distressed trading values, other lending institutions are slated to experience a “foreseeable visible share price pressure on city commercial banks with similar asset scale,” said CICC analysts.

Some banking institutions will also experience an economic slowdown. S&P Global attributes this downturn to small banks’ lack of risk management capability in relation to exponential growth in the nation, states Bloomberg.

China Construction Bank Corp. will assume management for the Baoshang business. However, the company will still remain under government control. Alongside this, the People’s Bank of China (PBOC) will also provide stricter lending policies to govern small- and medium-sized banks in the nation.