Another ‘Bank Run’ In China As Contagion Fear Grows, Surge In Bad Loans Threaten Viability Of Chinese Rural Banks

Anxious depositors thronged the retail outlets of Henan Yichuan Rural Commercial Bank demanding return of their money even as authorities attempted to address concerns on the stability of the troubled Chinese lender, The Wall Street Journal reported.

Henan Yichuan Rural Commercial Bank is a rural cooperative became a commercial lender attracting deposits mostly from farmers and county locals.

After Baoshang Bank, Bank of Jinzhou and Heng Feng Bank, Henan Yichuan Rural is the fourth prominent Chinese bank that is tottering on the brink of collapse.

In recent months, China’s banking sector has been hit by liquidity concerns, particularly among smaller regional banks that had expanded aggressively in recent years. Many of them are hit by surge in bad loans which threaten their viability.

Earlier in May this year, Chinese regulators bailed out Baoshang Bank in a move led to widespread concerns about the health of other small lenders and financial institutions, squeezing liquidity in China’s interbank market.

Chinese government directed state-owned banks and asset management firms, as well as an arm of the nation’s sovereign-wealth fund, to inject fresh capital and stabilize distressed banks.

Chinese Central bank governor Yi Gang cautioned last month that few Chinese regional banks had “engaged in blind expansion” in recent years, expanding beyond their home bases and chasing “risky projects” without proper control.

Bank of Jinzhou and Heng Feng Bank, both smaller regional banks, also had to be rescued prompting widespread fears about the state of smaller Chinese banks.

In a related development, police in China arrested a woman for allegedely spreading a rumour via WeChat that Henan Yichuan Rural Commercial Bank is going bust.

Local authorities warned that spreading rumours about the financial system is “a behaviour distorting financial order, endangering economic and financial security and even threatening social stability”.