Sichuan to See Merger of Two Municipal Banks Following Concerns over Faltering Health of Regional Lenders

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Two municipal banks in the central Chinese province of Sichuan have unveiled plans for a merger, amidst efforts to shore up the health of regional lenders due to concerns over their health.

On 28 June Sichuan’s Liangshanzhou Commercial Bank (凉山州商业银行) announced that it was planning to merge with Panzhihua Municipal Commercial Bank (攀枝花市商业银行) into a single commercial lender.

According to the announcement Liangshanzhou will no longer possess legal person status following the merger, with its original creditor’s rights, debts and staff to be transferred to the new replacement bank.

The move arrives following widespread concern about the health of China’s smaller regional banks amidst a spate of potential bank runs over the past year.

Liangshanzhou Commercial and Panzhihua Municipal are amongst eight banks in China that have failed to provide annual reports for the past two years, with the others including Baoshang Bank (包商银行), Ordos Bank (鄂尔多斯银行), Hengshui Bank (衡水银行), Bank of Tieling (铁岭银行), Xinjiang Huihe Bank (新疆汇合银行) and Ningbo Donghai Bank (宁波东海银行).

Both Liangshanzhou Commercial and Panzhihua Municipal had conspicuously high non-performing loan (NPL) ratios according to their last financial reports.

Liangshanzhou Commercial commenced operation in May 2007 following the conversion of the Liangshanzhou City Credit Society into a joint-stock municipal commercial bank, and is categorised as a regional financial institution whose main share controller is the local government.

As of the end of 2017 Liangshanzhou Commercial’s total assets were 29.974 billion yuan, while its non-performing loan ratio was 3.57% and its provision coverage ratio was 157.03%. Its net profits for 2017 were 18.7248 million yuan.

Panzhihua Municipal was established in November 1997 with registered capital of 1.562 billion yuan.

As of the end of September 2019 its total assets were 74.909 billion yuan, with a normal deposit balance of 53.04 billion yuan, and a total loan balance of 42.164 billion yuan.

Panzhihua Municipal’s “2019 Interbank Certificate of Deposit Issuance Plan” indicates that as of the end of the third quarter of 2018 its NPL ratio had risen to 4.61%, while its provision coverage ratio was 93.36%, both far off regulatory requirements.

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