The Chinese authorities and regulators have seized control of Baoshang Bank, a private lender due to the severe credit risk the bank poses.
The fall of Baoshang has its roots in the off-loan-book transactions that China’s small banks use to work around rules that restrict them from lending to weak borrowers, as well as evade capital and provisioning requirements. The move will probably heighten investor concerns about the true quality of lenders’ assets, what may trigger the next seizure, and how swiftly authorities will act, according to China International Capital Corp.
S&P Global warned on Monday that some aggressive small banks are “susceptible to an economic slowdown because their risk management capability can’t keep up with their breakneck pace of growth.”