China’s Central Bank Says Baoshang Takeover Is an Isolated Case

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China’s central bank said the government takeover of Baoshang Bank Co. was an isolated case, while revealing the seizure was triggered by misappropriation of funds by its largest shareholder.

The People’s Bank of China said Sunday that it doesn’t have plans to take over other institutions and that it’s confident in maintaining financial stability in markets, according to a statement released on its website.

Tomorrow Group, an investment conglomerate led by financier Xiao Jianhua, holds about an 89% stake in Baoshang Bank, according to the statement. It misappropriated a large amount of the bank’s funds, triggering serious credit risks and prompting the government to step in. The conglomerate is being probed by Chinese officials, according to people familiar with the investigation.

The May 24 announcement that the PBOC and China Banking and Insurance Regulatory Commission would assume control of Inner-Mongolia-based Baoshang Bank for one year surprised China watchers. They were left guessing at whether it marked an end to the implicit backstop for banks that has served as a linchpin of the country’s financial stability for decades. Analysts noticed similar risk indicators at other Chinese lenders.

Sunday’s statement said creditors with more than 50 million yuan are expected to initially receive 90% of the debt payable on average. Funds not initially guaranteed will be maintained and creditors can continue to seek follow up repayment. Regulators earlier said they would guarantee Baoshang’s repayment to all individual savers as well as corporate and interbank debt holders with 50 million yuan of liabilities or less.

China’s chief securities regulator Yi Huiman said he’s confident in the nation’s stable, healthy capital markets on a CCTV segment that also aired Sunday. The country’s capital markets can continue to weather greater risks and the U.S.-China trade spat won’t affect plans for a new technology stock trading venue, Yi said.

To contact Bloomberg News staff for this story: Benjamin Robertson in Hong Kong at brobertson29@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net;Jun Luo in Shanghai at jluo6@bloomberg.net;Penny Peng in Beijing at ppeng18@bloomberg.net;Lucille Liu in Beijing at xliu621@bloomberg.net

To contact the editors responsible for this story: John McCluskey at j.mccluskey@bloomberg.net, Ryan Lovdahl

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With assistance from Bloomberg