Rural Banks in China File for New Share Issues as Non-performing Loan Ratios Surge

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China’s rural banks have applied en masse for new share issues as they struggle with a sharp increase in dud or overdue loans.

Filings with the China Securities Regulatory Commission (CSRC) indicate that 29 of China’s rural banks have applied to raise capital via the sale of new shares in 2019.

10 of these 29 banks have posted non-performing loan (NPL) ratios in excess of 5%, ahead of the warning threshold mandated by the China Banking and Insurance Regulatory Commission (CBIRC), while 15 of them saw a rise in their NPL ratios during the period from 2007 and 2018.

Hebei Luanping Rural Commercial Bank saw its NPL ratio rise from 4.85% in 2017 to 7.96% in 2018, impacted by an ailing minerals market, while Jiangxi Yushan Rural Commercial Bank saw its NPL ratio surge to 22.98% in the first half of 2019, as compared to 4.71% at the end of 2017.

Pengze Rural Commercial Bank’s NPL ratio rose to 8.84% in the first half of 2019, as compared to 4.83% for 2017 .

The “2019 China Fi­nan­cial Sta­bil­ity Re­port” (中国金融稳定报告(2019)) recently issued by the Chinese central bank found that 586 out of 4,379 domestic lenders were in the “high risk” category, including over a third of all rural lenders.

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. 

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