The Chinese government is taking measures to intervene in the fortunes of a third ailing regional bank.
Central Huijin Investment Ltd, a state-owned Chinese investment company specialising in the banking sector, is set to become a strategic investor in Shandong province’s troubled Hengfeng Bank (恒丰银行) according to domestic media reports.
Sources said that the move does not rule out the possibility of local large-scale state-owned enterprises and other strategic investors acquiring stakes in Hengfeng Bank, as part of efforts to achieve “breakthroughs in market reforms.”
A source from Hengfeng said to Reuters that following the strategic investment the bank will remain under the administration of the Shandong province government and will not be subject to the guidance of the Chinese central bank or the China Banking and Insurance Regulatory Commission (CBIRC).
In June CBIRC announced that it was accelerating its restructuring of Hengfeng after the mid-sized bank failed to provide financial statements for two consecutive years.
According to its latest financial report Hengfeng had 1.2 trillion yuan in assets as of the end of 2016.
The move follows the takeover of Inner Mongolia’s Baoshang Bank by the government in May – the first such takeover in over two decades, as well as the acquisition of Bank of Jinzhou in north-eastern China by three major state-owned financial institutions in July.
Jason Bedford, a UBS Group AG analyst, said to Bloomberg that the capital shortfall of China’s smaller banks could be as large as 2.4 trillion yuan.
Distressed assets of Chinese banks in a broader context could total 9.2 trillion yuan, equal to around 4% of China’s commercial banking system and almost 10% of national GDP.