China Bank of Jinzhou says in talks with possible investors, renewing contagion worry

BEIJING/SHANGHAI (Reuters) - China’s Bank of Jinzhou, which suspended trading in its shares earlier this year and saw its auditor quit, said on Thursday that it is in talks with multiple parties for possible strategic investment, and that it is operating normally.

The statement on the bank’s website triggered fresh jitters about the health of smaller banks in China’s northeast, after regulators took over Inner Mongolia-based Baoshang Bank on May 24, rattling China’s interbank markets and sending some firms’ borrowing costs spiking.

Thursday’s statement, on the bank’s website, follows a Reuters report late on Wednesday that officials from the local branch of China’s central bank and other regulators had recently met financial institutions in Liaoning province to discuss measures to deal with liquidity problems at the lender.

Discussion on possible strategic investment is under guidance from local government and regulatory bodies, the Hong Kong-listed bank 0416.HK said in its statement.

Last month, China’s central bank introduced a credit risk hedging tool for holders of debt issued by Bank of Jinzhou, the latest measure by regulators to calm market nerves about the health of smaller banks.

In a separate statement on Thursday to Reuters, China’s banking and insurance regulator said it will study market-based ways to restructure and reform high-risk institutions.

The rare regulatory takeover of Inner Mongolia-based Baoshang Bank on May 24 sparked widespread concern in China’s interbank market.

Unlike the aftermath of Baoshang, when some market financing rates spiked, a trader at an Asian bank in Shanghai said that she saw relatively little market reaction to Thursday’s news, with rates stable in the primary market and yields on negotiable certificates of deposit (NCD) rising only slightly in secondary trading.

“The rise is not as exaggerated” as after the Baoshang Bank takeover, she said.

But another trader said that the announcement had still sparked some selling of NCDs issued by banks from northeastern China.

“This is a bigger bomb than Baoshang,” he said, adding that he sees Jinzhou’s woes as a likely trigger for problems at other banks in northeastern China, which already face relatively high funding costs in the interbank market.

Bank of Jinzhou has delayed the release of its annual report for 2018, and its shares have been suspended since April. The lender’s auditor, EY, had quit before signing off on the bank’s 2018 accounts in June, after being unable to agree with the bank on usage of some loans.

Bank of Jinzhou’s assets stood at 748.39 billion yuan ($109 billion) by end-June 2018, while its net profit was up 7.7% year-on-year to 4.3 billion yuan, according to its semi-annual report in 2018.

Reporting by Cheng Leng and Tony Munroe in Beijing, and Andrew Galbraith in Shanghai; Editing by Richard Borsuk