While the biggest banks in China attract a lot of attention from investors, the situation is the polar opposite when it comes to smaller banks. In a new development, a court in China held an auction for as many as 1.5 million shares of a rural bank on Alibaba’s Taobao platform. However, there were no bids for the shares in question. The base price for the shares was $161,000 but it did not draw a single bid and only 1000 people viewed the listing. The court had made three attempts to sell the shares in the past but all those attempts turned out to be failures.
However, it needs to be pointed out that this is nothing new in the case of the smaller banks in the world’s second-largest economy. Since May this year, the government has offered large discounts at the auctions of shares of small and unlisted banks. However, the auctions have largely failed and more than 50% of the auctions failed to attract any bidders. It is an indication of the sort of problems that are facing these banks at this point. Many rural banks are currently suffering from problems related to bad loans, weak risk management and lack of capital. This sheds light on the current financial scenario.
An analyst at China International Capital Corp spoke about the situation. He said, “With the ongoing deleveraging campaign, fiercer competition and tougher regulatory oversight, some smaller banks are fighting a battle for survival. Investors have no confidence in the healthiness and transparency of their balance sheets.” The Chinese state took over a range of banks this year for the first time in twenty years and that led to a lot of erosion of capital for creditors as well as investors. Considering the fact that China is going through an economic slowdown, it is hard to figure out when these banks are going to be able to engineer a turnaround. At this point in time, investors don’t seem to have any interest in these banks.