China is set to see consolidation among its smaller banks after a rare governmen...
HONG KONG/BEIJING - China is set to see consolidation among its smaller banks after a rare government seizure of a troubled Inner Mongolia lender in May, as Beijing looks to avert any systemic risk amid a slowing economy and an escalating trade war with the United States.
Although the central bank said on Sunday it was not planning any more seizures for the moment after taking over Baoshang Bank on May 24, citing serious credit risks, analysts see the move as a precursor to sector consolidation. China’s move to head off any instability among its 4,000-plus banks comes as Beijing faces pressure to boost bank lending to help cushion the economic impact from the higher tariffs on Chinese imports imposed by the United States.
Although small banks are not by themselves seen as a systemic risk, the concern is that enough of them have largely funded themselves via short-term money market borrowing, posing a collective danger if one or two fail. Last week one lender, Bank of Jinzhou, said its auditor EY had quit before signing off on its 2018 accounts, after being unable to agree with the bank on how it could check out loans where the actual usage did not match the purpose stated in the original documents.
But there were still some expectations about CCB being asked to consolidate Baoshang, JPMorgan said in a research note.
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