Heard on the Street: Beijing bailed out another Chinese lender, reassuring skittish investors—but for how long?
By Nathaniel Taplin June 12, 2019 7:19 a.m. ET “There aren’t 300 pieces of silver here,” the Chinese say, referencing the apocryphal tale of a man who buried 300 pieces of silver under a sign bearing these words. The silver was stolen by his neighbor, who left a different note: “Neighbor Wang didn’t steal.”
Yields on negotiable certificates of deposit, a crucial funding tool for some small lenders, have risen sharply for lowly rated issuers. Issuance has plummeted. The market appeared to calm down on Tuesday, but only after the central bank agreed to indirectly back another troubled small lender, Bank of Jinzhou, by greenlighting the issuance of a “credit risk mitigation warrant”—an instrument akin to a credit-default swap—for its latest NCD.
The NCD market was spooked for two clear reasons. First, unlike most short-term lending arrangements in China, NCDs have no collateral. That means if a borrower defaults, losses are larger. Second, Baoshang isn’t the only small lender sending out worrying signals. As many as 19 small Chinese banks, including Baoshang and Jinzhou, delayed releasing 2018 annual reports, according to a May analysis by Barclays .
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