China’s small banks still struggling to obtain funds to lend three months after first bank failure in 20 years

Baoshang Bank was taken over by the government in May, with HengFeng Bank and the Bank of Jinzhou also since requiring help

Slowing Chinese economy is putting pressure on the loan portfolios of small banks, many of whose customers have been hit hard by the US-China trade war

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Baoshang Bank, HengFeng Bank and the Bank of Jinzhou were linked to fugitive financier Xiao Jianhua. Photo: Reuters

Published: 7:15pm, 15 Aug 2019Updated: 10:58pm, 15 Aug 2019

China’s numerous small banks are still struggling to raise the finances needed to be able to offer more loans to aid the slowing economy nearly three months after the country’s first bank failure in more than 20 years.

After the government takeover of Baoshang Bank at the end of May, larger banks and investors remain cautious about providing financing to smaller institutions, fearful that their balances sheets hide large numbers of bad loans amid a continued government clampdown on risky lending.

The slowing of the Chinese economy is putting increasing pressure on the loan portfolios of small banks, many of whose customers are the smaller, private sector business that are being hit hard by the effects of the trade war with the United States.

The government is continuing to try to boost lending to help stabilise economic growth, but the credit crunch for small lenders has held back progress.

The People’s Bank of China and the China Banking and Insurance Regulatory Commission have taken over the management of Baoshang Bank for two years. Photo: Orange Wang

Net new national aggregate financing – a broad measure of credit and liquidity in the world’s second largest economy – slumped to 1.01 trillion yuan (US$144 billion) in July, less than half the 2.26 trillion yuan gain in June and much weaker than the expected 1.63 trillion yuan, according to the data released by the People’s Bank of China on Monday.

Much of the slowdown was due to inability of small and medium-sized banks to raise money in the interbank market, where banks lend to and borrow from each other.

China’s small banks still struggling to obtain funds to lend three months after first bank failure in 20 years

Baoshang Bank was taken over by the government in May, with HengFeng Bank and the Bank of Jinzhou also since requiring help Slowing Chinese economy is putting pressure on the loan portfolios of small banks, many of whose customers have been hit hard by the US-China trade war

Baoshang Bank was taken over by the government in May, with HengFeng Bank and the Bank of Jinzhou also since requiring help

Slowing Chinese economy is putting pressure on the loan portfolios of small banks, many of whose customers have been hit hard by the US-China trade war