Caixin
Dec 14, 2019 06:07 AM
FINANCE

Exclusive: Huishang Bank Hardest Hit From Interbank Deposits at Baoshang Bank

Baoshang Bank seizure’s ripple effects include costs to other banks on interbank deposits. Photo: VCG
Baoshang Bank seizure’s ripple effects include costs to other banks on interbank deposits. Photo: VCG

Nearly seven months after China’s financial regulators took the rare move of seizing troubled Baoshang Bank in Inner Mongolia, more details have emerged on losses other banks incurred from interbank deposits at Baoshang.

Caixin learned that Baoshang had interbank transactions with more than 200 banks, among which Huishang Bank, Xiamen International Bank and Guizhou Rural Credit Union have the largest exposure.

Huishang Bank, an urban commercial bank in central China, had about 6 billion yuan ($854 million) of losses on interbank deposits at Baoshang, Caixin learned exclusively from several people close to Huishang Bank.

As of the end of June, Huishang Bank had about 11.5 billion yuan of interbank deposits with peers including Baoshang, while it had an impairment provision of only 345 million yuan for any losses on those assets, according to the bank’s financial report.

The bank’s executives said in August that it received a payment guarantee from regulators and that Baoshang has had only a limited impact on the bank’s operations.

Baoshang might use part of its assets to cover Huishang Bank’s losses, several market participants told Caixin.

Chinese state-backed provincial lender Bank of Guizhou, which filed for an initial public offering (IPO) in Hong Kong, disclosed earlier this week that it still had about 151.3 million yuan ($21.7 million) of outstanding interbank deposits at Baoshang as of Dec. 6.

That was after Bank of Guizhou received 1.31 billion yuan of compensation from China’s national deposit insurance fund, the bank said.

Bank of Guizhou also subscribed for an undisclosed amount of interbank wealth management products from Baoshang that hasn’t been written down or covered by the deposit insurance fund. Normally, banks would use off-balance sheet profits to cover these losses, people from regulators told Caixin.

When the People’s Bank of China and the China Banking and Insurance Regulatory Commission took over Baoshang Bank in May, citing “severe credit risk,” the regulators guaranteed that all of Baoshang’s corporate deposits and interbank debts up to 50 million yuan would be honored, and at least 70% of interbank deposits exceeding 50 million yuan held by Baoshang would be guaranteed.

Baoshang was partly owned by Chinese financial group Tomorrow Holdings, the conglomerate controlled by tycoon Xiao Jianhua, who is reportedly under investigation for graft. The regional bank helped Tomorrow Holdings put together at least 150 billion yuan of funding through shadowy practices, including loans packaged as wealth management products, and interbank lending, according to a source familiar with the bank.

Contact reporter Denise Jia (huijuanjia@caixin.com)

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