Chinese regulators announce takeover of Baoshang Bank, cite credit risks

China’s financial regulators announced today China Construction Bank will take over business operations of Inner Mongolia-based Baoshang Bank, Reuters writes. The takeover will last a year. The announcement was made by the People’s Bank of China (PBOC) and China Banking and Insurance Regulatory Commission.

The local lender’s key stakeholder Tomorrow Holdings was under government scrutiny. According to Reuters, the move proves that small regional lenders have trouble operating in China; they suffer from “deteriorating asset qualities, inadequate capital buffers, and poor internal controls and corporate governance.”

Baoshang Bank hasn’t published annual reports since 2016. By the end of 2016, it had 156.5 billion yuan ($22.68 billion) of outstanding loans—the figure showed a 65 per cent rise from the end of 2014.