China Regulator Sees Bankruptcies as Last Option for Weak Banks

(Bloomberg) -- Chinese authorities said bankruptcies would be their last resort as they set out to deal with the nation’s troubled banks.

At a briefing in Beijing on Tuesday, Liu Rong, an official in the supervision department at the China Banking and Insurance Regulatory Commission, said the government has the processes it needs to handle problem banks.

Outlining potential triage operations of bank risks, the vice-director of the city commercial bank department said takeovers and bankruptcies would be the fourth and fifth options, with the first being replenishing capital, the second restructuring, followed by mergers and acquisitions.

“Bankruptcies are very rare globally as banks licenses are still valuable,” he said.

The comments come amid signals that Chinese authorities are taking a more coordinated approach to handling mounting problems at regional and rural lenders. The government spooked investors this year with its first bank seizure in two decades and has also bailed out two others.

More recently, regulators have been considering a plan that will urge smaller banks to merge as a way to deal with a slowing economy. China has more than 3,000 small banks, many of which are struggling to cope with mounting bad loans and a government crackdown on risky funding practices.

Problematic banks with less than 100 billion yuan ($14 billion) of assets would be urged to merge or restructure under a plan being discussed by financial regulators, people familiar with the matter said last week. Local governments would be held responsible for dealing with troubled lenders, with the central bank providing liquidity support if necessary, the people said, asking not to be identified discussing private information.

To contact Bloomberg News staff for this story: Lucille Liu in Beijing at xliu621@bloomberg.net

To contact the editors responsible for this story: Jun Luo at jluo6@bloomberg.net, Jonas Bergman, David Scheer

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With assistance from Bloomberg