2019-06-10

PBoC Steps in to Support Bank of Jinzhou

The key part of the story:
It is worth noting that this is the first interbank deposit receipt supported by the central bank. According to Jinzhou Bank's announcement, the inter-bank certificate of deposit is provided with credit enhancement by the private enterprise bond financing support tool (hereinafter referred to as CRMW)-if Jinzhou Bank fails to pay the full amount when the CD expires, the China Debt Credit Enhancement Investment Company will supplement the payment funds the next day.

  CRMW tool is one of the "three arrows" prepared by the central bank since late October 2018 to rescue private enterprises. This tool is mainly aimed at the situation that private enterprises in the bond market have difficulty in issuing bonds, which leads to the breaking of the capital chain. Specifically, the central bank provides part of the initial funds through refinancing, and the China Debt Credit Promotion Investment Company supports private enterprises that encounter temporary difficulties in debt financing by selling credit risk mitigation tools, guarantee credit enhancement and other means (see Caixin Weekly, No.42, 2018, "Central Bank Credit Enhancement for Private Enterprises").

财新: 锦州银行拟新发同业存单 首获央行增信支持 (Jinzhou bank's proposed new inter-bank certificates of deposit received increased support from the central bank)
Due to the recent takeover of the contractor bank, the risks of some other small and medium-sized banks have aroused market concern and the issuance of certificates of deposit among peers has slowed down. In response, regulators have frequently voiced their opinions and taken measures to smooth market sentiment.

On June 10, Jinzhou Bank (00416.HK) announced the 141st issue of interbank certificates of deposit in 2019. On June 12, the bank plans to issue 2 billion yuan of inter-bank certificates of deposit (hereinafter referred to as CD) with a maturity of six months, with a rating of AAA, an issue price of about 98.42 yuan and a reference yield of 3.21%. A senior market insider told Caixin that this rate of return is the average market level.

It is worth noting that this is the first interbank deposit receipt supported by the central bank. According to Jinzhou Bank's announcement, the inter-bank certificate of deposit is provided with credit enhancement by the private enterprise bond financing support tool (hereinafter referred to as CRMW)-if Jinzhou Bank fails to pay the full amount when the CD expires, the China Debt Credit Enhancement Investment Company will supplement the payment funds the next day.

  CRMW tool is one of the "three arrows" prepared by the central bank since late October 2018 to rescue private enterprises. This tool is mainly aimed at the situation that private enterprises in the bond market have difficulty in issuing bonds, which leads to the breaking of the capital chain. Specifically, the central bank provides part of the initial funds through refinancing, and the China Debt Credit Promotion Investment Company supports private enterprises that encounter temporary difficulties in debt financing by selling credit risk mitigation tools, guarantee credit enhancement and other means (see Caixin Weekly, No.42, 2018, "Central Bank Credit Enhancement for Private Enterprises").

The "June 30" liquidity test is approaching. Under the impact of the contractor bank incident, the market is concerned about whether small and medium-sized banks will suffer pains. On June 9, the official website of the central bank disclosed that the office of the financial stability development Committee had recently held a meeting to study the work of maintaining the stability of interbank business. At the meeting, the participating banks said that the scale of interbank business for other small and medium-sized banks would remain stable in the next step and the market order would be consciously maintained. At the same time, the People's Bank of China said it would use a variety of monetary policy tools to maintain a reasonable and sufficient liquidity in the financial market and provide targeted liquidity support to small and medium-sized banks.

Statistics from CICC's solid collection team show that on June 10, the actual issuance scale of interbank certificates of deposit accounted for 65% of the planned issuance scale, slightly warmer than the low point of the previous two weeks, but still lower than the 85% level before the contractor bank was taken over.

In recent days, Jinzhou Bank has been hit hard by the takeover of Baoshang Bank, resulting in difficult delivery of the annual report. At that time, financial institutions also sold Jinzhou Bank's bills.

Caixin reporter's inquiry data show that Jinzhou Bank has not issued any new CD since May 28 and has issued a CD stock of 48.61 billion yuan since 2019. According to the bank's 2019 issuance plan, the amount of CD to be issued for the whole year is 90 billion yuan, which is the highest in the interbank market.

Caixin reporters combined Jinzhou Bank's aforementioned issuance plan and previous financial reports to sort out, by the end of 2017, Jinzhou Bank had total assets of 723.4 billion yuan and total liabilities of 663.253 billion yuan. The expansion of the bank's balance sheet is driven by interbank investment and financing. On the asset side, the loan accounts for less than 30% of the total assets. The receivable investment under investment has exceeded 400 billion yuan, and the non-performing rate of this item has exceeded the non-performing rate of loans since 2016. On the debt side, the issuance of certificates of deposit by Jinzhou Bank has expanded significantly since 2016, with the amount of bonds payable reaching 30 billion yuan at the end of 2016, double the 15 billion yuan at the end of 2015. By the end of 2017, the amount of bonds payable by the bank was nearly 90 billion yuan, up 3 times from the end of 2016.

According to the aforementioned CD issuance plan of Jinzhou Bank, as of the end of 2017, the bank's non-performing rate was 1.04%, and its provision rate was 268.64%. This figure is obviously better than the average non-performing rate of 2% and the provision coverage rate of 150% in the banking industry, but the resignation of auditor Ernst & Young may indicate that there is moisture in this figure. Ernst & Young said it found that the bank's loan purpose was inconsistent with the contract.

On May 31, 2019, Jinzhou Bank announced that the board of directors and the audit committee received the resignation letter from Ernst & Young and immediately resigned as auditor of Jinzhou Bank. Prior to this, Jinzhou Bank had twice postponed the release of its 2018 annual report on April 1 and May 14. Trading of the company's shares was suspended from April 1. Later, Jinzhou Bank found a pre-listing agency to audit the annual report, which is expected to be published in August.

On the afternoon of June 9, the last day of the Dragon Boat Festival holiday, the CIRC issued its voice without naming and pointing out that "some have changed their auditors, with a large amount of tasks, and failed to complete the audit work on time." A few small and medium-sized banks fail to disclose their annual reports on time, which is a special case. These situations have been reported to the regulatory authorities according to regulations, and the regulatory authorities will urge relevant agencies to speed up the audit work and disclose the annual report as soon as possible. "

The legal representative and chairman of Jinzhou bank is now 62-year-old Zhang Wei, who has been the bank's chairman since 2008 and has not changed for 11 years. Jinzhou Bank's shareholding ratio is relatively scattered, and many major shareholders such as Dongxu Group, Tianyuan Manganese Industry, Baota Petrochemical and Huatai Motor are in poor financial condition and have many problems. Moreover, many shareholders pledged Jinzhou Bank's shares to the bank's affiliated companies or subordinate village banks. The true capital contribution is doubtful. So far, Jinzhou Finance Bureau holds less than 5%, only 4.27%. On June 2, people close to the supervision said Jinzhou local government would consider increasing capital and stabilizing the overall situation of the bank. However, so far Caixin reporter has not contacted Jinzhou Finance Bureau for verification.

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