November 12, 2019 / 10:13 AM / a month ago

China to tighten liquidity risk management on smaller banks: regulator

BEIJING (Reuters) - China’s banking and insurance regulator said on Tuesday it will tighten liquidity management for the country’s smaller banks and offer cross-region liquidity support for rural commercial banks if needed.

A run on Yingkou Coastal Bank in the northeastern Liaoning province, China’s second bank run in less than two weeks, has revived worries about the health of the country’s smaller lenders.

“The banking industry is a very sensitive industry, which requires us to improve the mechanism of liquidity risk management, and fend off systematic financial risks,” Liu Rong, vice department chief of city commercial banking at China’s Banking and Insurance Regulatory Commission (CBIRC), told a media briefing in Beijing.

He said the Yingkou Bank run was a one-off event triggered by negative rumors and that the bank’s operations were back to normal.

Some Chinese banks have accumulated risks due to the economic cycle or poor corporate governance, CBIRC spokesperson Xiao Yuanqi said.

“It is very normal and good to see some banks exiting ... due to the complex environment and fierce market competition,” Xiao added.

Asked about a roadmap to resolve problems facing high-risk institutions, Liu said regulators will first encourage them to rescue themselves via capital replenishment and improved corporate governance.

Other approaches include restructuring, mergers and acquisitions, takeovers and bankruptcy, Liu said.

But Zhou Liang, vice chairman of CBIRC, was quoted by financial news outlet Caixin on a Sunday forum as saying the CBIRC would not force mergers among smaller banks.

China has more than 4,500 financial institutions overseen by the banking regulator, most of which are small or midsized.

The rare seizure by government of Baoshang Bank earlier this year and state rescues of Jinzhou Bank and Hengfeng Bank have sharpened concerns about the health of hundreds of small lenders as China’s economic growth slows to near 30-year lows.

Commercial banks’ non-performing loan ratio was 1.86% by end-September, according to a separate release by the CBIRC on Tuesday, up 0.05% from end-June. The core tier 1 capital ratio, a key metric of the sector’s capability to buffer risks, stood at 10.85%, up 0.14% for the same period.

Reporting by Cheng Leng, Lusha Zhang and Ryan Woo in Beijing; Editing by Jason Neely and Catherine Evans

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