China says risks at small, mid-sized banks manageable

BEIJING: China’s banking regulator says risks at small and mid-sized banks are manageable, a central bank publication reported yesterday, in the latest move to soothe investors’ concerns after the government took over a troubled regional lender last month.The China Banking and Insurance Regulatory Commission (CBIRC) took control of Inner Mongolia’s Baoshang Bank due to “serious” credit risks on May 24, rattling Chinese markets and prompting the People’s Bank of China to inject cash into the banking system.

While the authorities said it was a standalone case, the seizure comes as Beijing is urging banks to boost lending to help cushion an economic slowdown, fuelling concerns about rising debt and more bad loans.

“At present, small and mid-sized banks are operating smoothly, liquidity is relatively ample, and overall risks are fully manageable,” the CBIRC said in a Q&A interview with the Financial News.

The regulator also said big banks are willing to continue interbank business with small banks to safeguard the stability of financial markets. Some small banks rely heavily on short-term borrowing from the interbank market, leaving other banks at risk if they run into trouble.

A Reuters analysis showed at least 18 smaller institutions have not published up-to-date financial reports, and in some of those cases senior regulatory officials have been appointed for bank management oversight.

The CBIRC in the interview sought to allay concerns about such practices, saying some of the banks that have been unable to complete audits were in the midst of equity restructuring, some were preparing to go public and some had changed auditors.

Those cases have been reported to the regulator, the CBIRC said.

In particular, Shandong-based Hengfeng Bank, which is in the midst of a restructuring spearheaded by the Shandong province, was singled out by CBIRC yesterday amid market speculation of further consolidation moves after Baoshang’s takeover. The bank has not released its annual report yet.

The CBIRC said liquidity at Hengfeng is ample and the bank is operating normally, while adding that authorities will continue to guide Hengfeng to improve its risk controls and compliance. — Reuters

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