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Caixin

China allows Baoshang Bank to go bankrupt in final cleanup

Original shareholders' and unprotected creditors' rights to be liquidated

Baoshang Bank had 556 billion yuan in assets and 290 billion yuan in bad loans by the end of 2017.   © Reuters

Troubled Chinese regional lender Baoshang Bank will file for bankruptcy and liquidate its remaining assets in a final step to clean up the mess that triggered a high-profile asset seizure by the state, the central bank said Thursday.

The equity of Baoshang Bank's original shareholders and unprotected creditors' rights will be liquidated in accordance with the law, the People's Bank of China (PBOC) said in its second-quarter monetary policy report. Authorities will hold accountable relevant people linked to the bank's troubles, the central bank said.

Financial regulators took control of the Inner Mongolia-based lender in May 2019 in the first state bank seizure in 20 years, citing severe credit risk caused by massive misappropriation by the bank's largest shareholder. Baoshang Bank was 89% owned by Tomorrow Holding, a sprawling private conglomerate controlled by fallen tycoon Xiao Jianhua.

The bankruptcy filing for Baoshang Bank marks a rare development in China's banking sector, as authorities have long been reluctant to allow lenders to fail out of concerns over the social impact. Only two Chinese banks have gone bankrupt over the past few decades, the most recent being Shantou Commercial Bank in 2001.

The central bank said the decision was made after an inspection of Baoshang Bank's assets and liabilities found it was deep in insolvency when it was taken over.

Under a government-led restructuring, parts of Baoshang Bank's assets, liabilities and businesses were taken over by the newly formed Mengshang Bank and Hong Kong-listed Huishang Bank. State investors, including a national deposit insurance fund managed by the central bank and the government of the Inner Mongolia autonomous region, took part in the restructuring.

These actions allowed 90% of big creditors' debts to be repaid, the PBOC said Thursday. The central bank has provided 23.5 billion yuan ($3.38 billion) of liquidity support through a standing lending facility since the state takeover, the central bank said.

Without the injection of public funds, the average repayment rate for creditors would be less than 60%, the central bank said.

Baoshang Bank had about 4.73 million customers, including 4.67 million individuals and 63,600 corporate clients when it was taken over, according to the PBOC.

Caixin reported earlier that at the end of 2017, Baoshang Bank had 556 billion yuan in assets and 290 billion yuan in bad loans. The bank held a huge amount of risky investments in the interbank market. Through shadowy practices, the bank put together at least 150 billion yuan of funding to serve the controlling shareholder's needs.

A number of officials have been probed in the Baoshang Bank crisis, including retired former local banking regulator Xue Jining and former Baotou banking regulatory chief Yu Lan.

The seizure and restructuring of Baoshang Bank was a crucial step for financial regulators to dismantle the risky assets of Tomorrow Holding, one of the highest-profile targets of China's crackdown on financial risks for its sprawling control of financial institutions and misuse of their funds.

Last month, China's top financial regulators assumed control of nine financial companies, including four insurers, two brokerages, two trust firms and one futures company. All were linked to Tomorrow Holding. Before that, Tomorrow Holding sold most of its stakes in financial institutions, including Hong-Kong listed Hengtou Securities, Guangdong-based brokerage Lianxun Securities, and regional lenders Bank of Weifang and Bank of Taian. Some of the stakes were sold to state-owned enterprises.

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Read also the original story.

Caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Nikkei recently agreed with the company to exchange articles in English.

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