China’s small banks dumped on signs of more policy pain

Bloomberg

China’s smaller banks started the New Year with a double whammy from regulators and investors, and more pain may be looming.
Bank of Tianjin Co. tumbled by as much as 12 percent in the first two trading days, the biggest two-day decline since its Hong Kong listing in March 2016, after rallying at the end of last year. Bank of Jinzhou Co., Bank of Qingdao Co., and Huishang Bank Corp. fell by more than 3 percent. In contrast,
bigger rivals have rallied.
A policy announcement highlighted China’s tough stance toward smaller banks, which are already a target of government efforts to reduce leverage in the financial system. The People’s Bank of China said it will set up a mechanism for lowering banks’ reserve requirements as needed during the Lunar New Year festival next month, letting national lenders use as much as 2 percentage points of reserves to meet liquidity needs for 30 days. The small banks, which are often the most cash-strapped, were excluded.
“This shows regulators are unrelenting in deleveraging efforts,” said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co. Small banks seeking liquidity will have to borrow from bigger banks at higher costs, he added.
China’s smaller banks have borne the brunt of a deleveraging campaign since April last year which has pushed up their borrowing costs, weakened profit growth and increased solvency risks, Natixis SA said in a December report.
Funding for smaller banks “has clearly worsened” beca-use they lack large deposit bases, said Alicia Garcia Herrero, the firm’s chief economist for Asia Pacific.