China’s Troubled Banks Get a Lifeline from Local Governments

China’s local governments are helping inject fresh capital into small lenders across the country, part of an expanding campaign to restore confidence in the world’s largest banking system, Bloomberg News reported. At least 10 small Chinese banks have raised money this year by selling shares packaged with non-performing loans, in several cases to buyers controlled by local authorities. In at least one deal, the NPLs were sold at above-market rates. The transactions, while modest in number given China has 3,000-plus small banks, show the determination of local authorities to shore up the linchpins of their district economies. The health of small banks has become a growing concern after the seizure of one lender in May forced losses on creditors and cast doubt on the longstanding assumption that the state would always backstop troubled banks. Read more

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