China’s Central Bank Says 93% of Financial Institutions Are ‘Safe’ After Henan Scandal Erupts in Violence

China’s central bank has issued an assurance that despite a recent scandal of local lenders in Henan province freezing withdrawals, 93% of the more than 4,000 financial institutions it reviewed late last year were rated as “safe,” as were virtually all of their assets.

Financial risks in the country are “generally controllable,” Sun Tianqi, head of the Financial Stability Bureau of the People’s Bank of China (PBOC), said at a Wednesday press briefing, in response to a reporter’s question about whether the Henan case could trigger risks across the entire financial and banking system.

The assurance came as four village banks in central Henan province and two in neighboring Anhui province have been preventing customers across the country from withdrawing their savings since mid-April.

After a protest outside the central bank’s branch in the Henan capital of Zhengzhou turned violent on Sunday, financial regulators announced a plan the next day to gradually repay some depositors.

Out of the 4,398 banks and non-bank financial institutions that the PBOC rated in the fourth quarter of last year, 4,082 fell “within safe limits,” Sun said, citing ratings published in March. The assets of these “safe” institutions made up 99% of the total among rated institutions, he said.

The central bank’s quarterly ratings classify financial institutions into 11 categories: level one to 10, and the worst rating, level D.

A rating of level one to five indicates that the institution falls within the “green zone,” a rating of level six or seven the “yellow zone,” while a rating of eight to 10 or D puts an institution in the high-risk “red zone,” according to the PBOC.

The rated institutions in the fourth quarter were 24 large banks, 3,997 small and midsize banks, and 377 non-bank institutions, such as financial leasing companies and consumer finance firms.

Rural cooperative institutions — consisting of rural commercial banks, rural cooperative banks, and rural credit cooperatives — and village banks received the poorest ratings during this period. Out of the 2,161 rural cooperative institutions and 1,649 village banks that were rated, 186 and 103 were deemed “high-risk,” respectively. They accounted for 91% of 316 high-risk financial institutions.

High-risk financial institutions were mainly concentrated in four provinces, the PBOC said, without naming the regions.

Contact reporter Zhang Yukun (yukunzhang@caixin.com)

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