Caixin (June 18) disclosed that small and midsize banks in China worried about the bad debts on their balance sheets may soon get a helping hand from local governments. It said policymakers are planning to allow local governments to replenish the capital of certain small and midsize banks to the tune of about 200 billion yuan ($28.2 billion) in an effort to defuse bad-debt risks, sources familiar with the matter told Caixin. Central bank data from April showed that of 4,005 small and midsize banks in China, 605 did not meet the minimum required capital adequacy ratio of 10.5%, and 532 were at a rather high risk. However, Caixin said, financial regulators, have expressed concern about replenishing the capital of these banks since last year but have also raised concerns about “moral hazard." In addition, some people are concerned about whether replenishing banks’ capital will actually do much to fix these banks.
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