Caixin
Aug 12, 2020 12:35 PM
FINANCE

Restructuring Looms in Shanxi’s Scandal-Hit Banking Sector

Four midsized city commercial lenders in Shanxi disclosed plans over the weekend to hold extraordinary shareholder meetings in late August to discuss restructuring.
Four midsized city commercial lenders in Shanxi disclosed plans over the weekend to hold extraordinary shareholder meetings in late August to discuss restructuring.

The banking sector in China’s coal-rich Shanxi province is expecting a major revamp following a series of graft investigations shaking the northern region’s financial system.

Four midsized city commercial lenders in Shanxi disclosed plans over the weekend to hold extraordinary shareholder meetings in late August to discuss restructuring. They include Jincheng Bank and Jinzhong Bank. Both said the meetings were to discuss mergers and restructuring. The two others are Yangquan Commercial Bank and CZ Bank, which said the sessions would discuss mergers and new business establishment.

The simultaneous announcements sparked expectations that the four regional banks would be combined in a major overhaul of Shanxi’s banking sector. The four banks are among six city commercial banks operating in the province, along with bigger rival Datong Bank and Hong Kong-listed Jinshang Bank. The banks didn’t comment on the matter.

The potential restructuring would take place as regulators step up a crackdown on corruption scandals plaguing Shanxi’s rural banking sector. Several former senior financial officials have been placed under graft investigation since July. They include Jing Hui, a former head of Shanxi’s provincial financial supervision administration; Zhang Anshun, a former head of the China Banking and Insurance Regulatory Commission’s Shanxi provincial branch; Cui Lianhui, former party chief of Shanxi Rural Credit Union; and several other senior officials at the credit union.

The Shanxi Rural Credit Union is the nexus of a vast financial network covering financial institutions focusing on rural borrowers and depositors in Shanxi. As of the end of 2019, the credit union managed total assets of 1.28 trillion yuan ($184 billion) with 835.9 billion yuan of deposits and 531.6 billion yuan of outstanding loans.

Caixin learned that the Shanxi Rural Credit Union has been caught up in a major scandal as tens of billions of yuan were lost because of embezzlement of loans and other illegal activities. Investigators have targeted several regional banks in Shanxi for risky business dealings with Longyue Industry Group, an agriculture conglomerate founded by Shanxi billionaire Tian Wenjun, and embattled bond defaulter Tunghsu Group.

Yangquan Commercial Bank, CZ Bank and Jinzhong Bank were among creditors of Longyue and affiliated companies when their credit crisis came into the spotlight in 2018.

All four lenders discussing reorganization were restructured from local rural credit cooperatives under the Shanxi Rural Credit Union. At the end of 2019, Jincheng Bank had total assets of 90.8 billion yuan while Jinzhong Bank had 78 billion yuan. Yangquan Commercial Bank and CZ Bank have yet to release 2019 results, but their most recent disclosures showed that Yangquan bank’s total assets stood at 45.8 billion yuan at the end of 2018 and CZ Bank’s at 41.9 billion yuan as of September.

Regulators have pushed for smaller regional lenders to consolidate in hopes of better handling mounting business pressures. In June, two city commercial banks in Sichuan announced a merger plan to create a stronger new institution.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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