China: New Henan bank aims to boost governance, cut graft at local lenders
Last year, a connected cluster of village banks in the central province of Henan suffered one of China’s worst financial scandals in years. Beijing’s reaction: to create a new state bank that will take stakes in rural financial and credit institutions with the aim of spotting and weeding out corruption and improving financial governance.
The creation of a proactive new state lender in one of China’s poorer regions points to a much-needed push by central government to root out corruption and boost governance at the country’s surfeit of often poorly run rural credit institutions (RCIs).
Details are still being sketched out, but it appears the new lender, Henan Rural Commercial United Bank (HRCUB), which was approved late last year by the China Banking and Insurance Regulatory Commission, China’s main bank regulator, is designed to play a number of roles.
HRCUB is expected to be a lender in its own right, according to analysts, with Rmb6 billion ($888 million) in registered capital. The provincial government will stump up Rmb4 billion of the total, with the rest to be sourced from the private sector.
It will also act as an activist shareholder-cum-regulator.
HRCUB’s main function is to improve corporate governance at the 130-odd rural credit institutions (RCIs) scattered across the province; and in the process, to act as Beijing’s local eyes and ears.
Many of these RCIs – a mix of rural credit cooperative and commercial banks – are historically poorly run, even when compared with peers in other provinces.