2019-11-08

Pivot Time: Another Bank Run, This Time in Troubled Liaoning

Another bank run, this time in Liaoning. The authorities have arrested people on charges of spreading rumors. After seeing China bottle up its troubles, it's unclear whether China's banking system is finally cracking or whether these are isolated incidents. Chinese culture has more herding than Western culture. A bank run is like a Black Friday sale in the USA, in that the crowd itself attracts more people. However, they are connected by one sure thing: social mood. Rumors of bank runs can happen anytime, but they only become serious when people have a reason to think they might not get their money back.



Sina: 辽宁营口沿海银行遭“挤兑” 回应:现金充足
On the afternoon of the 6th, the official microblog of the Public Security Bureau of Yingkou Economic and Technological Development Zone, the Public Security Bureau of Yingkou Development Zone, issued a notice saying that today’s online rumors of false rumors about the financial crisis in Yingkou’s coastal banks have led to a large number of The depositors went to the bank to cash in, and the staff gathered, causing the normal business order of the bank outlets to be disordered, and the surrounding security environment was unstable. After receiving the police, the Public Security Bureau of Yingkou Development Zone dispatched the police force to the six Yingyingkou coastal banking outlets in the district for security order maintenance, and brought a leading troublemaker suspected of disturbing public order to the Public Security Bureau for investigation. deal with.

  On the evening of November 6, the staff of Yingkou Coastal Bank Gaizhou Branch said to the news that at present all the outlets of the bank are in normal business operations, and there are still a large number of customers coming to withdraw funds, but the bank's cash is sufficient, "the special period is overtime. Avoid causing panic, let everyone know that they are doing business normally.
Yingkou is a city covered here before. About 18 months ago, the AA-rated port defaulted on its debt.

IICS: Update: AA+ Rated Yingkou Port Defaulted on ¥530 Million, Has ¥78.1 Billion in Debt

Way back in 2014, Liaoning was the epicenter of the real estate bust.

IICS: In Yingkou, Liaoning Unfinished Buildings Stretch For 50 Square Kilometers; Real Estate Graveyard

Later that year, I posted Liaoning Sounds Warning on Chinese Economy

If China's problems a systemic, it isn't surprising to see issues pop up in Liaoning.

FT: China’s small lenders suffer bank runs as economy slows
This week, police in Yingkou, a city of 2.5m people in the north-eastern province of Liaoning, arrested nine residents for posting “inappropriate remarks” on social media that Yingkou Yanhai Bank, a local lender, was in a “deep financial crisis”.

The online comments prompted local residents to flock to the bank’s branches to withdraw their savings. “Everyone says YYB is running into trouble,” said a Yingkou resident. “There must be an element of truth in it.”
Zhuang Bo, an economist at TS Lombard, a research firm, said YYB exemplified the difficulties faced by China’s small lenders that had expanded their footprint by issuing shadow banking products, which could include off-balance-sheet lending, peer-to-peer transactions and credit extended by asset managers.

Quick history lesson

Liaoning suffers from protracted industrial/commodity slowdown that starts in 2011
Liaoning goes all in on real estate development to boost growth
Liaoning real estate model implodes in 2014
Liaoning banks moved into shadow banking, WMPs to fuel growth
Liaoning banks hit a wall in 2018
Liaoning banks are going bust

Yes, Yingkou isn't the first Lianoning bank in trouble. The other was Bank of Jinzhou. It IPO'd in late 2015 as China's last round of stimulus was starting to have a positive impact. As I wrote then:
My curiosity got the better of me when I saw the bank is growing 50%+ yoy. I want to see how the bank increased assets to over 300 billion yuan with only 90 billion in loans. What are these assets? They're listed as debt securities classified as receivables. A look at the notes: wealth management products. The bank, as of June 30, had 90 billion lent out in normal banking and 125 billion lent out through shadow banking. Also from the notes: the average yield on their assets rose from 6.04% in the six months ended June 2014 to 7.80% in the six months ended June 2015.
And then in spring of 2019: PBoC Steps in to Support Bank of Jinzhou

Back in July I wrote China Credit Growth and Risk of Financial Crisis. Nothing has materially changed. Right here, right now, it looks like an important pivot point for the global economy and global financial system. If things progress in the direction of the past 8 weeks or so, then maybe the bank issues is overblown for now. "Trade talks" and the Fed's decision to grow the balance sheet will hit the pause button, at least until the Fed stops increasing its balance sheet in 1H 2020. If this is a pullback within a larger move, the denouement of central bank efforts since 2009, markets will deteriorate quickly given the widespread expectation (myself included) of at least a year-end rally in equities.

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