China's Crumbling Banking Sector: Another Bank Falters, Around 500 Banks At Potential Risk

The previous year has been difficult for Chinese banks, and the country’s central bank – People’s Bank Of China, said that about 13 per cent of the country’s financial institutions were considered at ‘high risk’.

This comes to light after the failure of the third bank within three months as the country’s economic growth is lagging behind and marked 30 year low.

According to investmentwatchblog.com, the Hengfeng Bank has now become the third bank, after Baoshang Bank and Bank of Jinzhou, to suffer an economic collapse after $40 trillion dollar debt.

However, the greater crisis lurks behind. China Financial Stability Report, 2019, published this November revealed that about 586 banks and financial institutions have the potential of getting collapsed and need an immediate transformation.

Though no specific banks were named, one got a score of “D,” meaning it was taken over or it went bankrupt. This comes amidst the protracted trade war going on between the US and China.

Due to the ongoing financial crisis, the banking sector of China is shrinking its lending margins.

The report disclosed that private and foreign banks are not at the receiving end but the banks located in the rural belts were marked ‘high risk’ by more than 30%.

The government had to intervene to save the crumbling banks starting with the takeover of Baoshang Bank in May, marking the first instance of a direct state takeover of a lender in two decades.

Partial bailouts were also carried out by the government for Bank of Jinzhou and Hengfeng Bank with the hopes of calming the crisis in the interbank market and preventing a liquidity crunch for troubled banks that heavily rely on lendings from the market.

This is an obvious display of the jolt taken by the South Asian region after India and China marked a slowdown in their respective economies. This may have a domino effect on the entire region’s financial stability in the near future.

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