Chinese Central Bank Stresses “Targeted Bomb Disposal” of Smaller Bank Risk

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The People’s Bank of China (PBOC) has highlighted risk in relation to smaller regional lenders as a key area of concern in its latest report on financial stability.

The “China Financial Stability Report (2019)” (中国金融稳定报告(2019)) released by PBOC on 25 November highlights the need for “safe disposal of regional, structural liquidity risk for small and medium-sized banks.”

The Report makes frequent use of the term “targeted bomb disposal,” while indicating that PBOC will continue to focus on the liquidity conditions of small and medium-sized banks, as well as strengthen policy support for small and medium-sized banks and drive further improvements to their corporate management and risk prevention.

As of the end of the third quarter of 2019 the core tier 1 capital ratio of small and medium-sized banks was 10.25%, while the allowance for impairment of losses on loans was 1.74 trillion yuan, for an increase of 24.4% compared to the end of the preceding quarter.

The liquidity ratios of 99.2% of small and medium-sized Chinese banks was higher than regulatory requirements as of the end of the third quarter.

2019 has been a tu­mul­tuous year for smaller re­gional lenders in China, with a string of bank runs and up­sets which in some cases ne­ces­si­tated in­ter­ven­tion from the cen­tral gov­ern­ment. 

Two re­gional banks in China met with abortive bank runs within a two week pe­riod in early No­vem­ber – Yingkou Bank in the north­east­ern province of Liaon­ing and Yichuan Rural Com­mer­cial Bank in Henan province. 

Ear­lier in the year the Chi­nese gov­ern­ment took over In­ner Mon­go­li­a’s be­lea­guered Baoshang Bank in May, for the first such forcible ac­qui­si­tion in more than two decades. 

A trio of lead­ing state-owned fi­nan­cial in­sti­tu­tions sub­se­quently took over the north-east­ern Bank of Jinzhou in July, while state-owned Cen­tral Hui­jing In­vest­ment sub­se­quently in­ter­vened in the for­tunes of Shang­dong province’s Hengfeng Bank. 

Re­lated sto­ries

Over 13% of Chi­nese Banks Cat­e­gorised as High Risk, More than One Third of Rural Lenders: PBOC

China to Step up Liq­uid­ity Man­age­ment for Smaller Lenders Fol­low­ing Two Bank Runs in Two Weeks

Chi­nese Cen­tral Bank In­ter­venes to Stem Bank Run in Henan Province

Chi­nese Au­thor­i­ties Come to the Aid of Third Be­lea­guered Re­gional Bank

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