Evergrande Crisis Escalates: Anxiety Triggers Small Bank Run, Chinese Officials Urge Calm

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Multiple state media outlets have reported that concerns about Evergrande's debt crisis contagion spreading to the broader financial sector have prompted a bank run in northern China.

Depositors queued up at a bank in Cangzhou, Hebei province, to withdraw their funds, as shown in photos and videos shared online this week. Officials have urged for calm amidst the situation.

On Wednesday, Yicai, a state-owned media outlet, reported that police in Cangzhou had apprehended "several individuals" who were allegedly spreading false information about the bank's financial instability due to its association with Evergrande, according to a bank officer present at the scene.

Claims on Chinese social media reviewed by CNN suggest that the Bank of Cangzhou provided billions of yuan in loans to Evergrande, the financially troubled property behemoth that defaulted on its debt in 2021 and is currently facing survival challenges.

In a recent announcement, Evergrande revealed that its founder and chairman Xu Jiayin had been apprehended on suspicion of criminal activities, raising concerns about the viability of the company's multi-billion-dollar restructuring strategy. This uncertainty could potentially result in a compelled dissolution of the company and significant losses for its creditors.

A statement from the city government has been displayed at the entrance of the bank, ensuring the safety of the public's deposits, as reported by Yicai. A photo of the statement, shared by the media outlet, urges financial consumers to make rational decisions and prevent the loss of interest on their deposits caused by rumors.

The document seemed to be officially signed and stamped by the Cangzhou government on Monday. According to the statement, the bank's operations are deemed to be "stable," and its depositors are safeguarded by the national deposit insurance program. The exact number of depositors who participated in the bank run, as well as the total amount withdrawn, remains uncertain.

Depositors protest in front of the Henan branch of the China Banking and Insurance Regulatory Commission, demanding their money back after their funds were frozen.

From Lan Nuo Nuo in February

Small banks in China are running into trouble. Savers could lose everything

Founded in 1998, Bank of Cangzhou is primarily owned by the local treasury department and operates branches throughout the prefecture, situated approximately 100 miles from Beijing. With approximately 3,000 employees, the bank reported total assets of 246.5 billion yuan ($34 billion) as of September-end. CNN has contacted the bank, the police, and the city government for their statements.

Bank says Evergrande risk controllable

Bank runs are not common in China, where the financial system is tightly controlled by the government and backed by state credit.

Similar incidents have taken place in recent years at several smaller lenders due to a real estate crisis and the impact of the Covid-19 pandemic, causing an increase in non-performing loans.

In the central province of Henan last spring, numerous depositors expressed their frustration when their accounts were unexpectedly frozen at six rural banks. After peaceful protests were forcefully suppressed by local officials, the provincial authorities attributed the scandal to financial fraud, apprehended over 200 individuals involved, and assured depositors of reimbursement.

Bank of Cangzhou refuted any claims of facing liquidity problems on Saturday. In a statement, the bank criticized the accuracy of the loan information presented in a circulated online document, which purportedly disclosed the amount owed by Evergrande to banks.

As of last Friday, the bank stated that it held outstanding loans of 346 million yuan ($47.4 million) to Evergrande and its affiliates. Additionally, the bank assured that it possessed adequate collateral in the form of land and commercial storefronts. It further emphasized that the risk is manageable and will not significantly affect the bank's operations, management, or asset quality.

China ups stakes in big banks

The crisis in Chinas real estate sector has affected stock market sentiment and the wider economy.

On Wednesday, the Chinese government took steps to increase its ownership in the country's four largest banks, leading to speculation that it may intensify its efforts to improve confidence in the financial system. Central Huijin Investment, a subsidiary of China's sovereign wealth fund, purchased a significant number of shares in Bank of China, Agricultural Bank of China, China Construction Bank, and Industrial and Commercial Bank of China, as indicated in individual filings with the stock exchange.

According to the filings, the investment firm intends to further raise its stakes in the next six months. As a result, there was a substantial increase in shares of the four banks on Thursday, contributing to a broader rally in the sector. Notably, China Construction Bank performed exceptionally well, with a 5.6% surge in Hong Kong and a 2.7% rise in Shanghai.

CNNs Martha Zhou contributed reporting.