Two Rural Banks in China Went Bankrupt

On August 26th, the Chinese Communist Party (CCP)’s Banking and Insurance Regulatory Commission (BIRC) approved the bankruptcy of Liaoning Taizihe Rural Bank and Liaoyang Rural Commercial Bank. Considering the ongoing sluggish real estate market and liquidity problems faced by several rural banks in Henan, the BIRC’s approval of the banks’ bankruptcy is particularly eye-catching.

The two banks approved for bankruptcy are in Liaoning Province in northeastern China. According to information disclosed in July, the branches, employees, and deposits of the two banks have been handled by Shenyang Rural Commercial Bank, which is also in the same province. In addition, according to person in charge of the relevant departments of the BIRC, Liaoning has disposed of 325 billion Yuan of non-performing assets of small and medium-sized banks by issuing special bonds.

In communist China’s banking system, there are over 4,000 small and medium-sized banks, accounting for majority of banks in the country. According to analysis reports, most rural and town banks are difficult to make profits or even deficits. The Chinese Government has long understood the risks of small and medium-sized banks. In 2019, the CCP’s regulators had begun to deal with the risks of small and medium-sized banks, including guidance on merger and reorganization of small banks with total assets of less than 100 billion Yuan. The local authority also require high-quality banks, insurance companies, to participate in the merger, acquisition and restructuring of small and medium-sized rural banks. However, outcome of risk resolution is poor, shareholders of small and medium-sized banks generally have higher expectations, and high-quality banks and insurance companies have insufficient confidence in the operation and management of small and medium-sized banks after acquiring them.