China's Liaoning province plans merging local banks as early as June - sources

BEIJING (Reuters) - China's northeastern Liaoning province plans to start merging local banks into one provincial lender as early as next month, three sources with direct knowledge of the matter said, as the rustbelt province speeds up moves to curb risks in its capital-strapped banking system.

The new lender, to be known as Bank of Liaoshen, will absorb Bank of Liaoyang and Yingkou Coastal Bank in the first phase of a longer-term merger, the sources told Reuters on Friday.

The Bank of Liaoshen will have an initial registered capital of 20 billion yuan ($3.10 billion), the sources said.

Some smaller banks in Liaoning have been hit by a rush of deposit withdrawals since late 2019, including Yingkou Coastal and Bank of Huludao, fuelled by persistent depositor speculation over funding crunches and poor corporate governance in an economy weakened by the COVID-19 pandemic.

The new bank is expected to launch in late June or early July, depending on the progress made in disposing the soured debts of Bank of Liaoyang and Yingkou Coastal Bank, the sources said.

The Liaoning government said it would set up a new provincial-level bank by merging 12 local banks, according to a government statement on the website of the People's Bank of China (PBOC) in January.

The 12 banks were not named.

On Wednesday, the Liaoning government said it will issue 10 billion yuan of special government bonds to support a new commercial bank, without identifying the lender.

One of the sources said the remaining 10 billion yuan of capital will be drawn from investment arms of local governments and local state-owned companies.

The China Banking and Insurance Regulatory Commission (CBIRC) did not immediately respond to a Reuters request for comment. The Liaoning government and Yingkou Coastal bank did not immediately respond to a request for comment. Bank of Liaoyang was not immediately reachable via phone and e-mail.

In recent years, in an attempt to defuse regional banking risks, China's top banking watchdog has been encouraging smaller banks to boost their capital base, which has prompted mergers and acquisitions in the sector to counter rising bad loans in some struggling local economies.

In a similar move, southwestern Sichuan province unveiled plans last June to merge Liangshanzhou Commercial Bank and Panzhihua Municipal Commercial Bank into a single commercial lender.

($1 = 6.4445 yuan)

(Reporting by Xiangming Hou, Steven Bian and Ryan Woo; Writing by Cheng Leng; Editing by Shri Navaratnam)