Hundreds rush to rural Chinese bank after solvency rumours-media

SHANGHAI, March 25 Tue Mar 25, 2014 2:14am EDT

Related Topics

SHANGHAI, March 25 (Reuters) - Hundreds of people rushed to withdraw money from a branch of a small Chinese bank on Monday after rumours spread about its solvency, local media reported, reflecting growing anxiety among investors as regulators signal greater tolerance for credit defaults.

The incident occurred at a branch of Jiangsu Sheyang Rural Commercial Bank in Yancheng in Jiangsu province, about 300 km (185 miles) north of Shanghai, the semi-official China News Service reported late on Monday.

Bank chairman Zang Zhengzhi was quoted saying the bank would ensure payment to all the depositors. The report did not say how the rumour originated.

Jiangsu Sheyang Rural Commercial Bank is subject to formal reserve requirements, loan-to-deposit ratios and other rules to ensure they keep sufficient cash on hand.

Depositor sentiment in Yancheng was rattled in January, when some local rural cooperatives -- which are not subject to the supervision of the bank regulator -- ran out of cash and locked their doors.

That news was followed by China's first domestic bond default by a Shanghai-based solar power company in March, which negatively impacted wider sentiment in Chinese credit markets.

Local media have also reported a heavily indebted real estate developer in Zhejiang province was at risk of defaulting on 3.5 billion yuan ($565 million) worth of loans -- a situation that has yet to be resolved.

When contacted by Reuters by phone on Tuesday, an official at the Jiangsu Sheyang Rural Commercial Bank branch hung up, saying she was busy.

An official at the administrative office at Jiangsu Sheyang Rural Commercial Bank said the bank would publish a statement shortly. On its website, the bank says it is capitalised at 525 million yuan ($85 million) and had total deposits of 12 billion yuan as of end-February,

Officials at the Jiangsu branch offices of the China Banking Regulatory Commission (CBRC) declined to comment. The Yancheng branch of CBRC and the propaganda offices in Yancheng city and Sheyang county did not answer calls seeking comment.

Until now, Chinese banks have operated under an implicit government guarantee that has largely prevented them from going bankrupt and has protected depositors in the rare cases when they have. Regulators are expected to unveil a formal deposit insurance scheme this year.

Ahead the Lunar New Year holidays in late January, at least three rural cooperatives in Yancheng ran short on funds, prompting what the local government described as a panic as depositors rushed to withdraw cash. Local officials say several co-op bosses fled after committing fraud. ($1 = 6.1888 Chinese Yuan) (Reporting by Gabriel Wildau, Xu Yong, Pete Sweeney, Samuel Shen, John Ruwitch and Shanghai newsroom; Writing by Kazunori Takada)

FILED UNDER: