Two Chinese local lenders file for bankruptcy

Two regional banks in the northern province of Liaoning have begun the bankruptcy process, according to a Friday announcement from China’s banking regulator. Although the cases appear to be relatively minor, the meticulous handling by the authorities brings to light the hidden risks taken by the nation’s smaller lenders.

The Liaoyang Rural Commercial Bank and Liaoning Taizehe Village Bank filed for bankruptcy, and the China Banking and Insurance Regulatory Commission (CBIRC) claimed it has “in principle agreed.”

The regulator commanded both banks to “strictly abide by the relevant laws and regulations in conducting follow-up works.” in two different but essentially identical notices on its official website. Additionally, the commission stated that the institutions must promptly disclose “if any serious situation occurs.”

Additional information regarding the problem was provided by Liaoning’s local financial regulators. The banks engaged in “operations that violated the laws and regulations,” and they “gravely destroyed local financial orders, bringing about serious risks.” according to the joint statement released on Friday. The statement neither elaborated on what kind of illegal activities have occurred nor on what sort of situation is emerging on the ground.

It’s interesting to note that local authorities started acting before Friday’s official declarations. According to the joint announcement, Shenyang Rural Commercial Bank, a different neighbourhood bank situated in the provincial capital Shenyang, was accepting all personnel, branches, and deposits. The two declarations that the CBIRC posted on Friday approving the start of bankruptcy procedures are dated August 3 and 4, respectively.