China introduces risk-hedging tool for bank debt amid market jitters about smaller lenders

Bank of Jinzhou Co

10/06/2019 12:49

BEIJING, June 10 (Reuters) - China's central bank introduced
a credit risk hedging tool on Monday for holders of debt issued
by Bank of Jinzhou, the latest measure by regulators to calm
market jitters about the health of smaller banks.
    China's interbank market has been nervous since regulators
seized control of Inner Mongolia-based Baoshang Bank on May 24,
citing serious credit risks.
    Bank of Jinzhou said last week that its auditor EY had quit
before signing off on the bank's 2018 accounts, after being
unable to agree with the bank on the actual usage of some
loans. urn:newsml:reuters.com:*:nL4N23C3C5 
    The new hedging tool for Bank of Jinzhou debt, called Credit
Risk Mitigation Warrant (CRMW), is offered to investors in the 2
billion yuan ($289 million) worth of certificates of deposit
(CD) issued by the bank, according to a statement posted on
Chinamoney.com.cn, the official website for China's interbank
market. The six-month CD carries a yield of 3.21%.
    The tool will be funded by The People's Bank of China
(PBOC), and sold by China Bond Insurance Co to institutional
investors, according to the statement. 
    Bank of Jinzhou is based in Jinzhou, in China's north
eastern Liaoning province.
    Regulators' seizure of Baoshang Bank drove interbank
financing costs higher, stirred investor concerns over the
health of other regional lenders, and sparked worries about the
broader economy.  urn:newsml:reuters.com:*:nL4N2330MM  urn:newsml:reuters.com:*:nL4N2341YP  urn:newsml:reuters.com:*:nL4N2350T1
    PBOC and the banking regulator have issued several official
statements over the past few weeks to soothe concerns in the
interbank market about the overall health of smaller banks. 
    The China Banking and Insurance Regulatory Commission
(CBIRC) said on Sunday that big banks were willing to continue
interbank business with small banks to safeguard the stability
of financial markets. 
    In a separate statement on Sunday, the PBOC said it will
provide targeted liquidity support to small and mid-sized banks,
after a meeting to discuss the stability of interbank business.
 urn:newsml:reuters.com:*:nL4N23G02H


($1 = 6.9279 Chinese yuan renminbi)

 (Reporting by Cheng Leng in Beijing, Samuel Shen, Winni Zhou
and John Ruwitch in Shanghai; Editing by Susan Fenton)
 ((cheng.leng@thomsonreuters.com; +8610-5669-2129;))