What’s new: Zhongyuan Bank Co., a city lender in central China’s Henan province, said it plans to merge with three other local banks as part of China’s push to combine struggling small lenders.
Zhongyuan Bank, created in 2014 in the merger of 13 smaller banks in Henan, will acquire Bank of Luoyang, Bank of Pingdingshan and Jiaozuo Bank of China Travel Services Co., according to a company filing Wednesday with the Hong Kong exchange.
The bank was one of the underwriters for defaulted state-owned Yongcheng Coal’s bonds and was criticized by China’s interbank bond market regulator for failing to adequately ensure the quality of due diligence. Yongcheng Coal’s default on a 1 billion yuan ($156 million) bond last year triggered a chain reaction, eroding investors’ confidence in state-owned enterprises’ bonds.
Bank of Luoyang was listed as a major lender to embattled property giant China Evergrande Group. At the end of 2020, 9.15% of its outstanding loans were to the property sector, according to its annual report. Its nonperforming loan ratio is about 2%, similar to Zhongyuan Bank’s 2.17%.
The background: Regional city and rural banks that serve mainly small businesses and farmers have been hit hard by defaults amid the coronavirus pandemic. That put pressure on the banks' finances.
Regulators have been urging small to midsized banks to bulk up on capital through consolidation to contain risks in the regional banking system.
Since 2020, regional banks in Shanxi, Sichuan and Liaoning provinces have conducted mergers. After the Zhongyuan Bank merger, Henan province will have only two city commercial banks. The total number of city commercial banks in China will shrink to 125.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (hello@caixin.com)
Get our weekly free Must-Read newsletter.
