May 27, 2024

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Chinese banking crisis: Authorities try to stem anger over frozen deposits

Chinese banking crisis: Authorities try to stem anger over frozen deposits

Clients from four rural banks in central Henan Province, and one in neighboring Anhui Province By the authorities starting Friday, according to Remarks late on Monday by the province’s financial regulators.

They added that the first payments will be sent to customers in a total amount of less than 50,000 yuan (7,445 US dollars) when depositing in one bank. The authorities added that separate arrangements will be announced in due course for customers who have more than that in their accounts.

Rural banks have not yet provided a clear explanation Why and for how long the funds will remain frozen. in May, National Banking Regulator He said That a major shareholder of Henan Banks was responsible for illegally attracting money from savers via online channels.

The payments will be handled by two other banks, but regulators have not said where the money will come from.

The remarks come after a mass demonstration on Sunday in Zhengzhou, Henan Province was crushed violently by the authorities. This was the largest protest to date by depositors, who were fighting for months to redeem their frozen savings.

A 45-year-old businessman from Wenzhou in eastern Zhejiang province told CNN Business last month that he was unable to access a penny of his family’s $6 million in savings.

Runs on small Chinese banks have become more frequent in recent years, and some have been accused of financial irregularities or corruption. But experts are concerned that a much bigger financial problem could loom, stemming from the fallout from the real estate crash and high bad debt related to the COVID-19 pandemic.

As many as 400,000 customers across China were unable to access their savings at rural banks in Henan and Anhui provinces, according to an estimate in April by Sanlian Live Weeka state-owned magazine.

This represents a decrease in the periphery of the massive Chinese banking system, but about a quarter of the industry’s total assets are owned by about 4,000 small lenders, who often have opaque structures of ownership and governance and are more vulnerable to corruption and severe economic slowdown.

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Police in Henan said Sunday that they have arrested a number of suspects, accusing them of using rural banks to illegally obtain public funds since 2011.

Despite police action, and a move to repay some depositors in the coming days, analysts warn that the crisis may not be over yet.

“The situation is still evolving,” Betty Wang, ANZ’s chief China economist, said in a note to clients on Tuesday.

“Despite the small size of the assets involved, the social impact of the incident could be significant if not dealt with appropriately. It may also lead to another round of regulatory tightening,” she said. Adding that Beijing may start a new round of investigations into the online banking sector, village banks or “possible domestic corruption.”

Not everyone will be helped

Monday’s comments are the first promise by the Chinese authorities that they will return the frozen funds.

However, many customers with more than 50,000 yuan stuck in those banks, Wang said, are still ignorant about the future of their savings.

The plan also has other exceptions.

No payments will be made to customers who have deposited money in banks via “other channels with high interest rates” or who have violated laws and authorities said. But they didn’t go into details, they left The grievances of many victims Apparently it is not processed.
Small banks in China are in trouble.  Savers can lose everything
In the Henan and Anhui cases, Chinese State-run media reported that thrift products were offered to customers via online platforms affiliated or owned by giants in China’s tech scene such as Baidu (Baidu) And the (Dinar)

In China, only local banks are allowed to take deposits from their customer base back home, but in recent years it has become common for many smaller banks to partner with online platforms and attract funds across the country.

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In early 2021, Beijing banned banks from selling deposit products via online platforms, fearing that the rapid expansion of the fintech sector would increase risks in the broader financial system.

But the savers CNN spoke with say banks have told them that deposit products are legal, and that they are protected under the deposit insurance system.

“If the incident is determined to be financial fraud or if the affected accounts do not strictly keep deposits, they may not be under the protection of the deposit insurance system,” Wang said.

In China, deposits of up to 500,000 yuan (about $75,000) are guaranteed if banks fail, but if a government investigation finds these cases involve “incompatible” transactions, people could lose everything.

The social discontent arising from the incident could be a major problem for the government.

The hardest hit, Wang said, were the low-income farmers, who deposited almost all of their life savings.

“They view banks as the safest place to be, backed by sovereign creditworthiness. Improper handling of the issue could lead to social unease and threaten stability,” Wang said.

“This may be particularly sensitive in the wake of local lockdowns and before the party’s 20th Congress,” she added.

The Beijing bureau of CNN, Jorge Engels in London, and Nectar Gan contributed to the report.