YINGKOU, China -- Anxiety over China's economy outside of its megacities appears to be boiling over after online rumors triggered two bank runs just days apart, a trend that sheds light on the increasingly tough business environments faced by the country's smaller local lenders.
A massive crowd gathered outside a Yingkou Coastal Bank branch on Nov. 6, the sheer size of the line caught the attention of a man who gave his family name as Shi on his way home from work. When he arrived at his home in Yingkou, a port city in Liaoning province, his wife told him that she had read on the internet that the bank was in trouble. The rumors were based on a local newspaper report that a major shareholder in the bank was facing financial difficulties.
While the huge crowd discouraged him from returning to the bank that day, he said, he returned to the branch two days later to close a 300,000 yuan ($42,500) fixed deposit. "We were on year four of a five-year account," he said. "I'm sad to miss out on the interest, but my wife's mother insisted so I had no choice."
The man was not alone. A crowd at another Yingkou Coastal Bank branch on Nov. 6 prompted a local shop owner to get in line even though there were already about 1,000 people waiting to get in.
"The last withdrawal happened at 3 a.m. the following morning," the shop owner said.
The run depleted the branch's cash reserves, adding to customers' anxieties. "By the end, they were piling cash up a meter high along the wall behind the tellers," the shop owner said.
The majority of those who stormed Yingkou Coastal Bank were elderly. Many also lacked basic knowledge of banking regulations and protections, such as that deposits of up to 500,000 yuan per person are guaranteed by the Chinese government. Things only settled down after the vice mayor spoke to reporters and 120 police officers were deployed, arresting those who spread the rumors.
The incident followed an Oct. 29 run on Yichuan Rural Commercial Bank, in the northeast of Shaanxi province, triggered by the arrest of its chairman the day prior.
Bank runs happened largely in rural communities in 2015 and 2016, amid strong pressures on the Chinese economy. But concern now appears to be spreading to more urban population centers as well.
Yingkou Coastal Bank and Yichuan Rural Commercial Bank both have capital adequacy ratios above what the government requires, and there is no reason to believe they are at risk of catastrophic failure. But they do face challenges.
Yingkou Coastal Bank shares its home city with Bank of Yingkou, which is bigger both in terms of assets and number of branches. Yingkou Coastal Bank's lending to HNA Group, its top shareholder which is in the midst of a major restructuring, has surged recently, and its total assets have jumped 40% in the last year. The situation has some parallels to Baoshang Bank, which was nationalized after its top shareholder, Mingtian Group, was found to be funneling its funds.
Meanwhile, Yichuan Rural Commercial Bank's credit rating was downgraded to A+ from AA- in late July. Its nonperforming loans rose to 2.95% of total lending at the end of 2018 from 0.54% two years prior.
Regional banks are facing headwinds across China amid a protracted economic slump outside the big cities. Bank of Jinzhou, Hengfeng Bank and Bank of Jilin have all received assistance from the government or a larger bank, and the list is only expected to grow.
The People's Bank of China conducted a liquidity stress test of 1,171 banks of varying sizes as part of a November report. It concluded 159, or 13%, would fail should economic growth fall to 4.15% and the yuan weakens 4.23% against the dollar.
These institutions would be unable to secure liquidity even after selling government bonds and other prime assets, the report said. Because bank runs would directly impact their liquidity, Chinese authorities are expected to keep a close eye on the situation.