International Finance

Slowing economy: China considers reforms for smaller banks

China's central bank will encourage merger talks for banks that are under financial risks

The People’s Bank of China is planning on bringing reforms in the rules with regard to the small to medium banks of the country.

The decision has been taken to counter a slowing Chinese economy which has led to smaller capital buffers and a fall in the reserves, forcing the need to reduce risk in the wider economy.

According to a report from the China’s central bank, the local governments, high risk banks and the government regulators should jointly work to resolve the risks related to smaller banks and financial institutions.

China’s central bank will encourage merger talks for banks that are under financial risks. The bank will try to resolve the issues related to smaller institutions by understanding the cause and nature of the risks. There has been no correct information as to when exactly will the new rules be introduced.

The government recently took over the Baoshang Bank, a relatively unknown bank, as a part of its decision to assist risk prone financial institutions. The government also assisted the Bank of Jinzhou by providing backing through three financial institutions that included the Industrial and Commercial Bank of China.

The state-owned Central Huijin Investment is taking in Hengfeng Bank as a part of the reform to enhance the bank’s capital adequacy and corporate governance.

To revive a slowing Chinese economy, the central bank previously brought out reforms in the rate charged on loans, to reduce borrowing costs for business. China’s economy is facing major problems due to the on-going trade war with the US. The economic growth for the second quarter of 2019 witnessed a thirty year low.

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