BEIJING, June 10 (Reuters) - China’s central bank introduced a credit risk hedging tool on Monday for holders of debt issued by Bank of Jinzhou, the latest measure by regulators to calm market jitters about the health of smaller banks.
China’s interbank market has been nervous since regulators seized control of Inner Mongolia-based Baoshang Bank on May 24, citing serious credit risks.
Bank of Jinzhou said last week that its auditor EY had quit before signing off on the bank’s 2018 accounts, after being unable to agree with the bank on the actual usage of some loans.
The new hedging tool for Bank of Jinzhou debt, called Credit Risk Mitigation Warrant (CRMW), is offered to investors in the 2 billion yuan ($289 million) worth of certificates of deposit (CD) issued by the bank, according to a statement posted on Chinamoney.com.cn, the official website for China’s interbank market. The six-month CD carries a yield of 3.21%.
The tool will be funded by The People’s Bank of China (PBOC), and sold by China Bond Insurance Co to institutional investors, according to the statement.
Bank of Jinzhou is based in Jinzhou, in China’s north eastern Liaoning province.
Regulators’ seizure of Baoshang Bank drove interbank financing costs higher, stirred investor concerns over the health of other regional lenders, and sparked worries about the broader economy.
PBOC and the banking regulator have issued several official statements over the past few weeks to soothe concerns in the interbank market about the overall health of smaller banks.
The China Banking and Insurance Regulatory Commission (CBIRC) said on Sunday that big banks were willing to continue interbank business with small banks to safeguard the stability of financial markets.
In a separate statement on Sunday, the PBOC said it will provide targeted liquidity support to small and mid-sized banks, after a meeting to discuss the stability of interbank business. ($1 = 6.9279 Chinese yuan renminbi) (Reporting by Cheng Leng in Beijing, Samuel Shen, Winni Zhou and John Ruwitch in Shanghai; Editing by Susan Fenton)