China is sharpening its scrutiny of small banks’ shareholders amid fears that loans from the lenders to big investors could prove a weak point in the country’s financial system, Reuters reports.
The China Banking and Insurance Regulatory Commission (CBIRC) has asked banks and some other financial firms for details of any investor building up stakes of 5 percent or more without required regulatory approvals, according to the report.
The regulator is said to have also asked the firms if they had disclosed all business transactions with their main owners.
In other moves, authorities conducted spot checks at some smaller banks in the last two months to probe possible misuse of capital linked to shareholders and transferring of ownership interests, sources told Reuters.
The scrutiny comes amid concerns that some debt-heavy Chinese private enterprises have amassed substantial stakes in smaller banks without regulatory approval and are using the lenders for their personal borrowings.
Regulators have asked banks to detail transactions with any related parties, which are entities controlled or jointly controlled by their major shareholders, between January 2018 and June 2019.
Regulators’ focus on small banks and their connections has intensified since late May, when the surprise takeover of Baoshang Bank sent shockwaves through China’s interbank markets, sharply raising borrowing costs, the report said.
While nominally small, China’s numerous small city commercial banks risk having outsized significance because of their close ties to the rest of the banking system as well as with bigger shareholders, many of whom are giant companies.
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