Rural Lenders Plagued by Bad Debt Secure Funding to Form New Bank
What’s new: Wuxi Rural Commercial Bank Co. Ltd. and Jiangsu Jiangyin Rural Commercial Bank Co. Ltd. plan to pour money into a joint effort to help set up a rural commercial bank in the city of Xuzhou in their home province of Jiangsu.
Shanghai-listed Wuxi Rural plans to invest 782 million yuan ($111 million) to help set up Xuzhou Rural Commercial Bank Co. Ltd., giving it a 10.95% stake, according to Wuxi Rural’s Wednesday filing (link in Chinese) to the Shanghai Stock Exchange.
Shenzhen-listed Jiangsu Jiangyin Rural plans to pour 338 million yuan into the new bank in exchange for a 4.73% stake, according to its Wednesday exchange filing (link in Chinese).
What’s the background: The new bank is set to be established on the basis of merging three rural commercial banks in Xuzhou that have struggled with nonperforming loans. This isn’t the only major investment news to recently come out of Jiangsu. Earlier this month, Jiangsu Changshu Rural Commercial Bank Co. Ltd. said that it would purchase a 33.3% stake (link in Chinese) in Jiangsu Zhenjiang Rural Commercial Bank Co. Ltd., becoming its largest shareholder.
Risk levels have grown at China’s small and midsize banks in recent years, as their rapid credit expansion has led to a large increase in nonperforming loans on their books amid the ongoing economic slowdown. The situation has been exacerbated by the Covid-19 pandemic as many businesses and individuals have been unable to repay their debts on schedule.
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