China has launched a pilot programme in the northern province of Hebei requiring the public to apply for approval if they plan to make large cash deposits or withdrawals at commercial banks.
The regulation comes after a series of bank runs in the past year at debt-laden small lenders and as an unprecedented pandemic-related economic contraction starts to take a toll.
From July 1, residents in the province will need to provide information about the source of deposits or the purpose of withdrawals for transactions over 100,000 yuan (US$14,162) for individuals, and 500,000 yuan for corporations, the state-backed China Securities Journal reported last week.
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Applicants will have to give one day’s notice to the bank to make a withdrawal of this size or larger, and gain the branch’s approval of the registration information, the report said.
The pilot programme will be expanded to Zhejiang province in the east and the city of Shenzhen in Guangdong province from October 1, affecting individual account transactions of more than 300,000 yuan and 200,000 yuan, respectively.
The measures were aimed at curbing unreasonable demand for large amounts of cash to keep the risks to China’s banking and economic system in check, the report said.
“Frequent use of large cash transactions could equate to money laundering or tax evasion so the regulation of large cash transactions can help curb such illegal acts,” said Pan Helin, executive dean of the Digital Economy Research Institute of Zhongnan University of Economics and Law.
The regulation mainly targeted transactions conducted with physical cash through quick, self-service deposit and withdrawal equipment that avoided monitoring, the Journal reported.
The People’s Bank of China was quick to say the public would feel a minimal impact on their business transactions as a result of the regulation.
But it will require every commercial bank to integrate their information systems to minimise the amount of reporting required by individual customers.
China’s US$40 trillion banking system is seeing growing signs of trouble after runs on two small local lenders last month, with customers trying to withdraw their savings because of concerns about the health of the financial institutions. Local governments and police in both Baoding in Hebei province and Yangquan, a coal mine town in Shanxi province, pleaded with customers not to withdraw cash from the banks.
Local branches of China’s central bank and the nation’s banking regulator also issued statements seeking to assure the public that their savings were safe.
China guarantees deposits of up to 500,000 yuan per bank. But investments in wealth management products and trust investment plans, which are popular among Chinese savers and are often sold via bank branches, are not protected.
And while bank runs are often calmed quickly after intervention by local authorities, the episodes are reminders of the troubled balance sheets of small Chinese banks amid souring loans and darkening growth prospects, which have been exacerbated by the coronavirus.
Many small lenders in China are facing a mix of problems including rising non-performing loans, insufficient capital and poor governance.
Bank of Gansu, which raised HK$6 billion (US$848,000) through an initial public offering in Hong Kong in January 2018, was hit by a bank run in April, while Yingkou Coastal Bank in the rust-belt province of Liaoning received a large volume of over-the-counter requests to withdraw cash in November.
Last year, the central government took control of Baoshang Bank as the lender in Inner Mongolia, once a star performer, was unable to sustain operations and was recapitalised and restructured. The government was also forced to bail out the Bank of Jinzhou and Hengfeng Bank last year.
The small banks’ woes come as Beijing needs them most, relying on the lenders, which often serve small businesses, to provide credit to factories and farms to help them survive the impact of the pandemic.
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