Three of China’s state-backed financial institutions are to take stakes in a struggling commercial bank, indicating a different approach by regulators toward the country’s small troubled lenders.
The Industrial and Commercial Bank of China, the country’s largest bank by assets, said one of its units would pay up to 3 billion yuan ($435.6 million) for a 10.82% stake in Bank of Jinzhou Co., which lends mostly to small and medium-size companies in a northeastern region of the country.
ICBC said its investment was aimed at supporting the regulators’ goal of channeling more funding to the private sector.
Two of China’s largest asset managers that specialize in handling distressed debt will also take minority stakes, Bank of Jinzhou said.
China Cinda Asset Management
’s stake would represent about 6.49% of its shares. China Great Wall Asset Management’s stake wasn’t disclosed.
The news sent prices of Bank of Jinzhou’s U.S. dollar bonds higher on Monday, according to traders. The introduction of state-backed firms could pave the way for future capital injections into the bank, said some analysts.
The recent moves had little impact on the country’s money markets despite investor concern over the health of the Chinese banking system in recent weeks. In May, Chinese regulators seized control of Baoshang Bank, once controlled by a missing tycoon and facing serious credit risks. The authorities said the takeover was an isolated incident but it led to spikes in some short-term lending rates and other market dislocations. The regulators took steps to calm the market by pumping liquidity into the system and asking brokers and financial firms to continue to trade with each other.
The purchase of stakes in Bank of Jinzhou by state-owned entities suggests the bank’s problems are less grave than Baoshang’s, said Shen Meng, director of Chanson & Co., an investment bank in Beijing.
But problems at the two banks are emblematic of troubles that have long plagued the country’s city commercial lenders, said Xue Hongyan, chair of Suning internet Finance Research Institute in Beijing.
Many smaller banks have weaker deposit bases than state-owned banks. In the case of Baoshang and Jinzhou, both banks also serve less developed regions, where local economies have been saddled with debt and hindered by inefficiencies. In Liaoning province, where Jinzhou Bank operates, nonperforming loan ratios among banks averaged 4.61% at the end of September 2018, much higher than the 1.87% industry average.
Bank of Jinzhou’s Hong Kong-listed shares have been suspended since April this year. Before the trading halt, the bank had a market capitalization of about 54.5 billion yuan ($7.9 billion). The bank reported roughly $108 billion in assets by end of June 2018 and has delayed filing its 2018 annual report.
At the end of May, the bank said Ernst & Young had resigned as its auditor due to what the accounting firm said were unresolved questions about some loans the bank had made.
On Sunday, the bank said its businesses were operating normally and it intends to release its 2018 annual report by the end of August.
By orchestrating stake transfers to state-owned entities, Chinese authorities are trying to avoid a potential bank run that could erode public confidence, said Zeng Xianzhao, manager of private-equity firm Nuoding Asset Management in Chongqing.
— Frances Yoon and Yifan Wang contributed to this article.
Write to Stella Yifan Xie at email@example.com
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