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Chinese banking stocks have been under pressure after the Inner Mongolia based Baoshang Bank was taken over by regulators due to “serious credit risks” last Friday.

The seizure of Baoshang Bank, the first case in two decades, will have limited impact on the operations of Chinese banks but will have a negative effect on Chinese banking stocks in the short term, especially the small and medium-sized banks, Wang Yaoping, an analyst at China International Capital Corp Hong Kong Securities Ltd., said in a research report.

There will be some liquidity pressure in the market when customers transfer their money from their banks to larger ones, Wang said, adding that the yields of the 69.3 billion yuan (US$10.93 billion) debts and interbank deposits issued by Baoshang will probably be fluctuating for some time.

Baoshang’s bonds were suspended from trading on Monday after yields were indicated up by about 70 basis points. Overseas-traded AT1s, or loss-absorbing bonds, fell at several small Chinese banks, according to Bloomberg-compiled prices.

With the interbank repurchase rate jumping to the highest in a month and AT1s slumping across several small lenders, People’s Bank of China injected a net amount of 150 billion yuan through open-market operations on Monday and Tuesday, the most since the week ended March 8, Bloomberg reported Tuesday.

The Baoshang incident is an individual case and will not become a trend in the Chinese banking sector, said Yang Rong, chief banking analyst at CSC Financial Co. Ltd, was quoted by mainland media as saying. The bank was seized as its capital adequacy ratio was too low, and the takeover by banking regulators had resolved the problem, Yang said.

Yang said all listed Chinese banks meet the requirements in their capital adequacy ratios while their non-performing loan ratios remain low. He said “bank runs” will not happen at Baoshang Bank, which can then restructure its assets.

On Tuesday, many Chinese banking stocks fell in Hong Kong even as the Hang Seng Index rose 102 points, or 0.38%, to 27,390.

Industrial and Commercial Bank of China slumped 1.07% to HK$5.54 (69.4 US cents). Bank of Communications decreased 0.49% to HK$6.09 while China Construction Bank was down 0.32% at HK$6.19.

Baoshang Bank, owned by Chinese financier Xiao Jianhua, has been taken over by China’s banking regulators for one year starting from last Friday due to serious credit risks, according to a joint statement by the People’s Bank of China and the China Banking and Insurance Regulatory Commission.

Read: China’s Baoshang Bank taken over for 1 yr on ‘serious credit risks’

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