July 4, 2019 / 6:47 AM / 2 months ago

China's state insurance fund to take over Baoshang NCDs from July 8 - sources

SHANGHAI/BEIJING, July 4 (Reuters) - China’s state-backed deposit insurance fund will start taking over Baoshang Bank’s interbank debts from July 8, three sources familiar with the matter told Reuters, as regulators work to calm market jitters after taking control of the lender in May.

The sources cited a document as saying that the deposit insurance fund, incorporated by the People’s Bank of China (PBOC) on May 29, will take over a total 150 interbank negotiable certificates of deposit (NCDs) issued by Baoshang before May 24 that mature after July 16.

Those NCDs are worth a total of 45.21 billion yuan ($6.58 billion), according to Refinitiv data.

The fund will take over the instruments in the form of ownership swaps, with the amount of guaranteed repayment based on previous agreements reached between creditors and the bank’s takeover committee, the sources said.

Regulators seized control of Inner Mongolia-based Baoshang Bank on May 24, citing “severe credit risks”. Beijing has since taken a series of measures to ease liquidity stress in China’s interbank market, and has repeatedly said risks at small financial institutions are manageable.

Financial News, a newspaper affiliated with China’s central bank, said in a June 16 article that 99.98% of Baoshang Bank’s institutional creditors will be fully repaid.

Small banks have nevertheless struggled to raise funds in the interbank market in recent weeks amid growing aversion to risky assets.

On Wednesday, the spread of AA+ rated 3-month NCDs over their nominally safer AAA rated equivalents hit a record high of 81.1 basis points, up 68 basis points from May 24. AA+NCD3MS=CFXS

($1 = 6.8717 Chinese yuan)

Reporting by Fang Wu, Hongwei Li and Andrew Galbraith in SHANGHAI, Xiangming Hou in BEIJING, writing by Cheng Leng Editing by Shri Navaratnam

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