Authorities in Shandong province have arrested staff at an agricultural firm for triggering a bank run on a local lender by spreading rumours of its financial ill-health.
In an statement on its official website Linshang Bank said that “several individuals had spread rumours” that the lender was in an ailing state, spurred panicked customers to make mass withdrawals at branch in the Shandong province city of Linyi.
The bank, which has 61 billion yuan in deposits, sought to reassure customers customers by urging them “not to believe or spread rumours to jointly maintain good financial order.”
Bank officials said to the South China Morning Post that the situation had been restored to normalcy and that regular operations had resumed.
“Our branch managers have been explaining to our clients…and most clients left the brand without withdrawing money after they knew it was just untrue gossip.”
The news site of local authorities said that it had detained a total of five people in relation to the matter, as well as issued warnings to eight over the dissemination of rumours about the lender.
According to local media reports the culprits were disgruntled employees of agricultural processing firm Shandong Sanwei Oil Group, who had been placed on leave following the shut down of production lines.
The employee triggered the bank run by spreading the rumour that the firm’s collapse would cause it to default on billions of yuan in loans, which would in turn lead to disaster for Linshang Bank.
At one point over 500 depositors had reportedly amassed outside the bank demanding withdrawal of their money.
According to its latest annual report Linshang Bank is in good fiscal health, with capital and non-performing loan rations that are all in compliance with regulatory benchmarks.
The last time bank run caught headlines in China was three years ago, when reports that a rural lender in the Jiangsu province county of Sheyang was out of cash prompted a three day bank run.
Regulators have made financial stability, deleveraging and risk prevention the key notes for 2017, with the China Banking Regulatory Commission and the People’s Bank of China launching a crackdown on lending and financing practices.
Local lenders that are smaller, less experienced, and have limited access to capital, are considered to be especially vulnerable segments of the Chinese banking sector, given that they often heavily exposed to the local companies who are their primary borrowers.