China Deposit Insurance Plan Signals Some Banks May Fail
This article is for subscribers only.
Chinese Premier Li Keqiang’s plan to introduce deposit insurance is meant to comfort the nation’s savers as bad loans mount. In the bond market, it’s fueling speculation he’s preparing to let some banks collapse.
Authorities may tolerate failures of smaller banks once depositor safeguards are in place, Kwong Li, chief executive officer of China Lianhe Credit Rating Co. said. Among lender bonds rated at or below AA, the extra yield investors demand to hold the 2022 securities of China Bohai Bank Co. in the northern city of Tianjin surged to an 11-month high of 245 basis points on April 17. The premium on the notes due 2019 of Harbin Bank Co., a lender near China’s border with Russia, has jumped 51 basis points in the past year to 225.