https://asia.nikkei.com/Economy/Chi...9&pub_date=20220714213007&seq_num=11&si=44594
Demonstrators hold up signs during a protest over the freezing of deposits by some rural-based banks, outside a People's Bank of China building in Zhengzhou, Henan Province, on July 10. ©Reuters CK TAN, Nikkei staff writerJuly 12, 2022 08:42 JSTUpdated on July 12, 2022 19:44 JST
SHANGHAI -- A major protest in central China is shining a light on the country's history of bank scandals and lax oversight over rural lenders, analysts say.
On Sunday, a crowd of about 1,000 fuming bank depositors clashed with police outside a branch of China's central bank in Henan province's Zhengzhou city, demanding to get access to deposits that were frozen by local lenders.
Videos of the angry protest -- a rarity in mainland China -- showed plainclothes security teams being pelted with water bottles and other objects as they charged the crowd.
Some demonstrators were roughed up as they were taken away.
The local scandal, which first arose in April, has exploded into a national story as social media videos at the weekend showed angry crowds accusing the government of colluding with bank shareholders as they chanted "Li Keqiang, return our money," referring to China's premier.
"In China, whose citizens have no chance to express views through the ballot box, domestic bank runs can signal falling confidence in the system," said Diana Choyleva, chief economist at U.K. consultancy Enodo Economics.
The protesters are among thousands of customers who opened accounts at rural banks in Henan and neighboring Anhui Province that offered higher interest rates. They later found they could not withdraw their funds after media reports that the head of the banks' parent company was on the run and wanted for financial crimes.
On Monday, Henan authorities said they would start paying back depositors on behalf of the banks -- Yuzhou Xinminsheng Rural Bank, Shangcai Huimin County Bank, Zhecheng Huanghuai Community Bank and Kaifeng New Oriental Rural Bank -- in an apparent bid to ease tensions after the weekend dispute.
In a public notice, police said they had evidence of financial fraud at the lenders tracing back as far as 2011 that involved cross-shareholdings and sales of illegal banking products through third-party online platforms.
Authorities said a fraud investigation was underway and that some suspects had already been arrested over the frozen deposits, which could be worth up to $1.5 billion, according to local media reports.
Public confidence in China's local lenders had already been waning after a government bailout of troubled Baoshang Bank and several other rural lenders in 2019.
State oversight has increased as officials look to keep a lid on the fallout from a slowdown in economic growth triggered by China's strict COVID-19 policies.
But rural banks still tend to have less regulatory oversight as officials favor expanding credit to support local economies, said Andy Xie, an independent economist in Shanghai.
"Of course, local governments or corrupt businesses would take advantage of that," he added.
China's more than 1,650 local banks represent over a third of China's total lenders and play a crucial role in supporting small businesses and rural economies.
But that exposure to small business has also opened up banks to bigger risks, including high levels of bad debt.
Balances on their outstanding loans worth less than 10 million yuan ($1.5 million) totaled 6.39 trillion yuan nationally in the first quarter, representing about 13% of smaller banks' total assets. That is more than double the 5% of assets at major lenders, according to the China Banking and Insurance Regulatory Commission.
The agency's data also showed that smaller lenders have a nonperforming loan ratio of 3.4%, significantly higher than the 1.4% at major lenders.
"Compared to large banks, rural commercial banks face a sharper fall in net interest margins with limited improvement in asset growth, leading to pressure on profitability and solvency," said Gary Ng, a Hong Kong-based economist at French investment bank Natixis. "Therefore, it is likely (that we will) see more rural commercial banks facing trouble again."
The latest scandal is likely to usher in more official oversight. But there is little chance that the government will abandon small banks like some of the country's debt-ridden property developers, according to Ng.
"The banking sector is different from real estate developers -- the Chinese government cannot simply let it go," Ng said. "But ultimately, it means society will be paying for the cleanup."
China bank protest highlights history of lax oversight
Officials vow to pay back funds frozen at banks in Henan province
Demonstrators hold up signs during a protest over the freezing of deposits by some rural-based banks, outside a People's Bank of China building in Zhengzhou, Henan Province, on July 10. ©Reuters CK TAN, Nikkei staff writerJuly 12, 2022 08:42 JSTUpdated on July 12, 2022 19:44 JST
SHANGHAI -- A major protest in central China is shining a light on the country's history of bank scandals and lax oversight over rural lenders, analysts say.
On Sunday, a crowd of about 1,000 fuming bank depositors clashed with police outside a branch of China's central bank in Henan province's Zhengzhou city, demanding to get access to deposits that were frozen by local lenders.
Videos of the angry protest -- a rarity in mainland China -- showed plainclothes security teams being pelted with water bottles and other objects as they charged the crowd.
Some demonstrators were roughed up as they were taken away.
The local scandal, which first arose in April, has exploded into a national story as social media videos at the weekend showed angry crowds accusing the government of colluding with bank shareholders as they chanted "Li Keqiang, return our money," referring to China's premier.
"In China, whose citizens have no chance to express views through the ballot box, domestic bank runs can signal falling confidence in the system," said Diana Choyleva, chief economist at U.K. consultancy Enodo Economics.
The protesters are among thousands of customers who opened accounts at rural banks in Henan and neighboring Anhui Province that offered higher interest rates. They later found they could not withdraw their funds after media reports that the head of the banks' parent company was on the run and wanted for financial crimes.
On Monday, Henan authorities said they would start paying back depositors on behalf of the banks -- Yuzhou Xinminsheng Rural Bank, Shangcai Huimin County Bank, Zhecheng Huanghuai Community Bank and Kaifeng New Oriental Rural Bank -- in an apparent bid to ease tensions after the weekend dispute.
In a public notice, police said they had evidence of financial fraud at the lenders tracing back as far as 2011 that involved cross-shareholdings and sales of illegal banking products through third-party online platforms.
Authorities said a fraud investigation was underway and that some suspects had already been arrested over the frozen deposits, which could be worth up to $1.5 billion, according to local media reports.
Public confidence in China's local lenders had already been waning after a government bailout of troubled Baoshang Bank and several other rural lenders in 2019.
State oversight has increased as officials look to keep a lid on the fallout from a slowdown in economic growth triggered by China's strict COVID-19 policies.
But rural banks still tend to have less regulatory oversight as officials favor expanding credit to support local economies, said Andy Xie, an independent economist in Shanghai.
"Of course, local governments or corrupt businesses would take advantage of that," he added.
China's more than 1,650 local banks represent over a third of China's total lenders and play a crucial role in supporting small businesses and rural economies.
But that exposure to small business has also opened up banks to bigger risks, including high levels of bad debt.
Balances on their outstanding loans worth less than 10 million yuan ($1.5 million) totaled 6.39 trillion yuan nationally in the first quarter, representing about 13% of smaller banks' total assets. That is more than double the 5% of assets at major lenders, according to the China Banking and Insurance Regulatory Commission.
The agency's data also showed that smaller lenders have a nonperforming loan ratio of 3.4%, significantly higher than the 1.4% at major lenders.
"Compared to large banks, rural commercial banks face a sharper fall in net interest margins with limited improvement in asset growth, leading to pressure on profitability and solvency," said Gary Ng, a Hong Kong-based economist at French investment bank Natixis. "Therefore, it is likely (that we will) see more rural commercial banks facing trouble again."
The latest scandal is likely to usher in more official oversight. But there is little chance that the government will abandon small banks like some of the country's debt-ridden property developers, according to Ng.
"The banking sector is different from real estate developers -- the Chinese government cannot simply let it go," Ng said. "But ultimately, it means society will be paying for the cleanup."
