The People’s Bank of China (PBOC) has sought to assuage concerns about the health of the Chinese banking sector following its recent, unprecedented takeover of beleaguered regional lender Baoshang Bank.
A senior PBOC official provided details on the takeover in an interview with PBOC’s official news publication that was published on 2 June.
“Recently, there have been people on the market who are concerned about whether or not there will be takeovers of other institutions following the takeover of Baoshang Bank,” said the official. “Please everyone keep calm, at present there have been no such decisions.
“If any institution needs liquidity support or capital increases and share expansions, they are fully able to achieve this via market-based methods. At present financial market liquidity is ample in general, financial risk is under control overall, and we are confident and determined to maintain the stability of the financial system.
“With regard to the takeover of Baoshang Bank, this is entirely an individual case, and we must objectively and coolly look at the matter.
“Baoshang Bank’s biggest shareholder was Mingtian Group (明天集团), which collectively held 89% of equity in Baoshang Bank.
“Because a large volume of funds were illegally appropriated by the largest shareholder, this led to late payments and difficulty making repayments over a lengthy period of time, causing Baoshang Bank to suffer from a severe credit crisis, and triggering statutory conditions for lawful takeover.”
The PBOC official stressed that takeover measures are only adopted as a last resort when their absence could “severely harm the lawful rights and interests of depositors in general and the depositor security of depositors in particular.”
He highlighted in particular those circumstances where a commercial bank has already or could possibly experience a credit crisis that severely impacts the interests of depositors as stipulated by article 64 of the “Commercial Bank Law” (商业银行法) or circumstances where there could be a credit crisis that severely affects the lawful rights and interests of depositors and other clients as stipulated by article 38 of the “Banking Sector Regulatory Administrative Law” (银行业监督管理法).
“The takeover of Baoshang Bank is strictly and lawfully executed…there must firstly be ample legal basis for the protection of the creditor’s rights of various creditors, and where the creditor’s rights of large-sum creditors involve credit and debt relations, acceptance drafts, guarantee deposits and other matters, contracts will be respected, spurring market actors to actively abide by their agreements.”
The PBOC official that there will be 100% protection for the principal and interest of individual customers as well as public and interbank institutional customers for sums of under 50 million yuan, as well as projected protection of around 90% for the principal and interest of large-sum creditors involving amounts of in excess of 50 million yuan.
“Since 24 May, when the People’s Bank of China and the China Banking and Insurance Regulatory Commission jointly issued the takeover announcement, takeover work has proceeded smoothly with the strong support and cooperation of local government and relevant departments,” said the official. “The rights and interests of various creditors have been maintained.”
According to PBOC the money of 5.2 million individual depositors as well as over 200,000 wealth management clients has been “fully protected,” alongside 250,000 public and interbank clients owed less than 50 million yuan.
PBOC also vouched for the full-sum protection of Baoshang Bank’s banker’s acceptance bills of 50 million yuan or less, and no less than 80% of the sum of those exceeding 50 million yuan.
“At present, Baoshang Bank’s various businesses are operating normally, operating outlets are in order, and various businesses are being customarily handled…in fact, following takeover, Baoshang Bank has already obtained the vigorous protection of the People’s Bank of China, the China Banking and Insurance and Regulatory Commission and the depository insurance fund.
“Last Friday the market accepted the issuance of its interbank certificates of deposit.”
PBOC also committed to maintaining sufficient liquidity to prevent any smaller lenders succumbing to similar difficulties.
“In recent days, PBOC has used multiple methods including open market operations and management of central treasury funds to appropriately release liquidity, and banking system liquidity remains ample.
“Money market rates at the end of May were basically in line with those at t the end of the month, and the market mood remains stable.
“Looking at matters in general, at present liquidity for small and medium-sized banks is relatively ample, and various liquidity indices are situated at normal levels.”