PBOC Says Majority of Small-scale Lenders Still Healthy Following Henan Province Rural Bank Scandal

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The Chinese central bank has sought to reassure markets as to the health of the country’s small-scale lenders, in the wake of a scandal involving rural village banks in central China’s Henan Province.

Sun Tianqi (孙天琦), head of the the financial stability department of the People’s Bank of China (PBOC), said that the authority had actively cooperated with local governments and regulators to appropriately deal with the Henan province rural county bank scandal since its outbreak.

“[We] have guided sub-branches to implement their responsibility of maintaining regional financial stability, and effectively performed liquidity risk monitoring and emergency response protections,” said Sun at a press conference held on 13 July.

Sun also sought to provide reassurances as to the health of the regional banking sector.

“Looking at matters overall, China’s financial risk has contracted and is in general under control,” Sun said. “99% of banking sector assets are within the safety threshold.

“As of the end of 2021, the total assets of China’s banking sector institutions was 345 trillion yuan, accounting for 90% of total financial sector assets. For this reason banking sector stability is financial stability.”

PBOC assessments from the end of the fourth quarter indicate that 4082 out of 4398 banking sector financial institutions fell within the safe ratings category of grades 1 to 7, accounting for 93% of institutions assessed, as well as 99% of assets.

PBOC categorised 316 banks as “high risk” (grades 8 to 10), accounting for 7% of the total, as well as 1% of assets.

As of the end of 2021 China was host to 1651 village county banks – the category of bank involved in the recent Henan Province bank run scandal. These institutions first made their appearance in China in 2007, and currently account for around 36 of Chinese banking sector institutions.