What’s new: The credit ratings of eight small and medium-size Chinese banks were downgraded as nonperforming loans rose, according to China Lianhe Credit Rating Co. Ltd.
One of the downgraded banks is Shengjing Bank Co. Ltd., a lender associated with debt-plagued developer China Evergrande Group. Lianhe Credit lowered its rating of Shenyang-based Shengjing Bank to AA+ from AAA, citing an increase in nonperforming loans and decreased quality of credit assets amid the ongoing Covid-19 pandemic and accelerated exposure to regional credit risks.
Shengjing Bank also experienced frequent changes in senior management, posing risks to the stability of corporate governance and continuity of business strategy, Lianhe Credit said July 30 in a report.
Three other banks based in the northeastern rustbelt province of Liaoning were also downgraded: Bank of Fuxin, Bank of Huludao and Dalian Rural Commercial Bank. One rural commercial bank in neighboring Jilin province, two rural commercial banks in Shanxi province and one in Henan province were also downgraded.
The background: China Evergrande, the country’s most indebted developer, holds a 36.4% stake in Shengjing Bank. The businesses have hundreds of billions of yuan of related-party transactions. Evergrande has been caught in a liquidity crunch as its access to new funding was severely diminished after regulators moved to curb rising debt levels among property developers. The company resorted to offloading assets and spinoffs to ease funding pressure.
Several local lenders suffered capital crunches last year, including Bank of Huludao and Bank of Jinzhou, which was rescued with a state-backed restructuring. Liaoning and Shanxi provinces have taken actions to merge their regional lenders to contain financial risks.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)
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