Two rural lenders in the northeastern province of Liaoning have obtained approval from China’s banking regulator for the launch of bankruptcy proceedings.
On 26 August the China Banking and Insurance Regulatory Commission (CBIRC) announced via its official website that it had in principle agreed to the commencement of bankruptcy proceedings by Liaoyang Rural Village Commercial Bank (辽阳农村商业银行股份有限公司) and Liaoning Taizi He Village County Bank (辽宁太子河村镇银行股份有限公司).
The announcement arrives after Shenyang Rural Commercial Bank announced on 3 July via its official website that starting from that day it would take over the branches, personnel and deposits of both Liaoyang Rural and Liaoning Taizihe.
The Chinese central bank’s official news agency Financial Times also reported that as of 2 July Shenyang Rural had completed takeover of the key operations of the two rural lenders.
Dong Ximiao (董希淼), chief financial researcher with China Merchant United, said that the regional financial sector could see this form of restructuring and takeover more frequently in future, in the form of cross-county and cross-municipal mergers of smaller scale rural commercial banks and rural credit societies at the county level.
Regulators could also push for the conversion of rural county banks into the branches of larger and healthier lenders.
“The merger and restructuring of small and medium-sized banks requires the introduction of market-based mechanisms, and appropriate arrangements with regard to equity structure, institutional reorganisation and the allocation of senior personnel,” Dong said.”
“What’s more important and needs to be understand is that mergers and restructuring aren’t a one-trick pony…the prevention and dissolution of financial risk and accelerating the development of small and medium-sized banks still requires far more effort.
“Small and medium-sized banks are indispensable to China’s financial system, and there needs to be new ways of thinking, new methods and new measures to support their healthy development.”