China’s northeastern province of Liaoning plans to merge 12 local city commercial banks to contain risks in the regional banking system amid a deteriorating economy in the rustbelt province.
The local authority would apply to set up a new provincial level commercial bank, formed by merging 12 city banks, according to a Liaoning government statement posted on the website of the People’s Bank of China (PBOC). The statement did not provide any bank names.
The provincial government would bring in strategic shareholders for the new bank, it said, including the state-owned Liaoning Financial Holding Group and PBOC’s deposit insurance fund.
The aim of the merger is to build “a first-class urban commercial bank” that has a “clear shareholding structure, abundant capital adequacy, tight internal risk control and fine governance,” it said.
Several smaller banks in Liaoning province have suffered a rush of withdrawals since late 2019, including Yingkou Coastal Bank and Bank of Huludao, fuelled by persistent online speculation over funding crunches and poor corporate governance in an economy weakened by COVID-19.
To defuse regional banking risks, China’s top banking watchdog has encouraged smaller banks to boost capital and has promoted mergers and acquisitions in the sector in a bid to counter rising bad loans in some struggling local economies.
The central bank also said recently it gave its approval for two local banks to issue a new type of perpetual bond, allowing investors to convert debt into stocks if specific risk events rise, a tool created to help undercapitalized smaller lenders.
In a similar move, central Chinese province of Sichuan unveiled plans last June to merge Liangshanzhou Commercial Bank and Panzhihua Municipal Commercial Bank into a single commercial lender.
The local government in northern Shanxi province also revealed in December that it would raise 15.3 billion yuan ($2.36 billion) worth of a special 10-year government bond to replenish the capital of a new provincial bank, formed through the merger of five local smaller lenders. ($1 = 6.4794 Chinese yuan) (Reporting by Zhang Yan, Cheng Leng and Ryan Woo; Editing by Ana Nicolaci da Costa)