The development underscores the prevalence of unmanageable debt, which poses a systemic risk in China’s financial system.
On Monday, in a significant development, the takeover of Inner Mongolia-based Baoshang Bank by by China Banking and Insurance Regulatory Commission (CBIRC), jolted markets with investors worrying on the broader risks to the country’s financial system.
The move has also boosted interbank financing costs for a few smaller banks and pushed up yields on some negotiable certificates of deposit (NCD) issued by regional banks by more than 10 basis points on Monday, said traders.
“We recommend paying close attention to the impact on liquidity that could be triggered by this event,” said analysts at China Merchant Securities in a note in reference to the Baoshang takeover.
They went on to add, selling pressure on Baoshang debt would not only affect the deposit yield curve, but is also likely to add more pressure on instruments from “Baoshang-like” city commercial banks that have not released financial results in several years and have significant interbank borrowings.
According to an official at the China Foreign Exchange Trading System and National Interbank Funding Center, Baoshang’s bonds have been suspended from trading following the takeover.
According to two banking sources with knowledge of the matter, CBIRC’s Beijing branch issued a notice on Monday asking banks to not grab clients from Baoshang. CBIRC has warned of “severe punishment” in case any bank does not heed its advice.
Incidentally, Baoshang is partly owned by Chinese financial group Tomorrow Holdings. The firm has not published any annual reports since 2016 citing a plan to seek strategic investors.
The bank’s chairman Xiao Jianhua has been under government investigation for more than two years midst a government crackdown on systemic risks posed by financial conglomerates. Jianhua, a billionaire has been absconding since 2017.
According to Refinitiv data, Baoshang Bank has 206 outstanding bonds worth $10.71 billion (73.83 billion yuan). Its last filed balance sheet shows that it had $22.7 billion (156.5 billion yuan) in outstanding loans as of Dec. 2016, a jump of 65% compared to 2014.
Categories: Creativity, Economy & Finance, Entrepreneurship, HR & Organization, Regulations & Legal, Strategy, Sustainability
manageria.biz 
Leave a comment