Troubled banks in China are struggling to raise funds as concerns over the health of the financial system grow and confidence in state-led bailouts falters, reported the Financial Times.
China’s banking system is facing its greatest challenge in nearly 20 years after years of runaway growth and mounting bad debt levels, which have topped 40% of loans at some small lenders.
The government has had to intervene in the operations of three local banks this year, starting with the takeover of Baoshang Bank in May, marking the first instance of a direct state takeover of a lender in two decades. Partial bailouts at two more lenders, Bank of Jinzhou and Hengfeng Bank, were also carried out this year with the hopes of calming nerves in the interbank market and avoiding a liquidity crisis for troubled banks that are heavily reliant on borrowing from the market.
Troubled banks have been able to secure only 20-40% of the funds they have sought to raise in the interbank market for negotiable certificates of deposit since the takeover of Baoshang Bank, according to research from UBS.