Could seizure of Baoshang Bank lead to consolidation among China’s smaller banks with assets worth US$9.9 trillion?
- Beijing is under pressure to boost bank lending to help cushion impact from higher US tariffs on Chinese imports
- At least 18 smaller institutions have not published up-to-date financial reports
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.
Mergers of weaker small banks with stronger peers is seen by analysts as the best option for a sector reeling from rising bad loans and funding costs, and which Beijing is wary of due to probable knock-on effects should some lenders start to fail.
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.
“This is China’s mini-Lehman moment,” said Natixis’ chief economist, Alicia Garcia Herrero. “The regulators would start looking at consolidation as a real option … this is just a trigger for that,” she said referring to Baoshang’s takeover.
The People’s Bank of China, the central bank, and the China Banking and Insurance Regulatory Commission did not respond to a request for comment.
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 US.