Chinese watchdog to encourage rural bank mergers

FILE PHOTO: Surveillance cameras are seen outside the China Banking and Insurance Regulatory Commission (CBIRC) building in Beijing, China December 13, 2018. Picture taken December 13, 2018. REUTERS/Stringer

BEIJING (Reuters) – China’s top banking watchdog said on Tuesday it would encourage founders of rural banks to boost capital, and would promote mergers and acquisitions in the sector to cut financial risks.

China’s Banking and Insurance Regulatory Commission (CBIRC) also said in an online notice it would encourage eligible investors, including local companies and non-bank financial institutions, to acquire and inject capital into rural banks.

“A small group of rural banks have become high-risk financial institutions in recent years due to various factors, seriously affecting and limiting their sustainable development and financial service capabilities,” the CBIRC said.

To reduce financial risks in the sector, founders of rural banks are encouraged to increase capital and stakes in those lenders, and dispose of non-performing loans.

For some high-risk rural lenders, local regulators are allowed to explore the option of turning them into branches of state-owned banks or joint-stock banks operating in the region.

For institutions where a “rescue would not be meaningful,” local CBIRC bureaus can urge founders to restructure, offer assistance to takeovers and even shut down the lender, the CBIRC said.

China had a total 1,641 rural banks at the end of September, data from the CBIRC showed, covering 1,206 counties in 31 provinces.

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