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China’s central bank to offer liquidity for banks after Baoshan bank takeover

China’s central bank said on Sunday that it would offer liquidity to Inner Mongolia-based Baoshang Bank, which the country’s financial regulators took over due to serious credit risks.

The People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) would provide more policy support to improve small- and mid-sized banks’ corporate governance, according to a statement released on Sunday.

China’s banking and insurance regulator said that it will take over Inner Mongolia-based Baoshang Bank for a year staring on Friday due to the serious credit risks it poses, according to a joint statement released by the People’s Bank of China (PBOC) and China Banking and Insurance Regulatory Commission (CBIRC) on Friday .

The takeover, the first case in nearly twenty years, highlights that China’s regional lenders are still in bitter struggles, suffering from deteriorating asset qualities, inadequate capital buffers, and poor risk controls and corporate governance.

The rare takeover highlight the concerns that these struggling small banks are likely to make the country’s financial system more vulnerable amid the economic slowdown.

After the takeover, PBOC and CBIRC will offer liquidity support and timely and sufficient funds to ensure that the bank’s payment system is operating smoothly, said the PBOC.

“From the situation of the past two days, Baoshang Bank has sufficient funding in its local branches. Depositors can take out money freely and smoothly,” it said.

Principals and interest on personal saving accounts in the bank will be fully guaranteed, and the business operations of Baoshang bank will not be affected by the takeover, CBIRC said in a separate statement on Friday.

The central bank also said it would guarantee the safety of all principal and interest of corporate deposits and interbank liabilities below 50 million yuan, and that the handling of those above 50 million yuan could be negotiated.

Baoshang didn’t publish any annual earnings reports in the past two years, citing its plan to seek strategic investors. By the end of 2016, the bank had a total of 156.5 billion yuan ($22.68 billion) of outstanding loans, a 65 per cent higher than the end of 2014, according to the bank’s last filing on its assets and liabilities on its website.

Baoshang Bank came to prominence after its key stakeholder Tomorrow Holdings was targeted in a government crackdown on systemic risks posed by financial conglomerates.

China Construction Bank (CCB) will be entrusted to handle the business operations of the small lender, based in the industrial city of Baotou, according to the statement.

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