Many financial institutions have been closed in China, such as China Guangdong Investment, Huayin, etc., but so far only overseas banks have been closed. Please see relevant information:
Hainan Development The bank, referred to as Overseas Bank, is a joint-stock bank headquartered in Haikou City, Hainan Province, People's Republic of China. The bank was announced to be closed by the People's Bank of China on June 21, 1998.
Hainan Development Bank opened for business on August 18, 1995, with a registered capital of RMB 1.677 billion (including RMB 30 million in foreign currency). The bank is controlled by the Hainan Provincial Government and currently has 43 shareholders including China North Industries Corporation, China Ocean Shipping Corporation, Beijing Capital International Airport, etc. The bank was established by merging five trust investment companies and raising equity capital from mainland China. Hainan Development Bank does not only operate in Hainan Province. The bank established two branches in Guangzhou in 1996 and Shenzhen in May 1998.
The background of the closure of Hainan Bank
Before 1997, that is, before the merger of Hainan Bank and the Trusteeship Credit Union, Hainan Province was established as a special economic zone, the economy began to develop rapidly, and the real estate industry also expanded. The scale expansion was accompanied by the emergence of many financial institutions. However, without effective government monitoring, a bubble appeared in the real estate industry, and in the mid-to-late 1990s, the bubble began to collapse. There are a large number of banking financial institutions in Hainan Province. In this fierce market competition, various credit unions have adopted high interest rates to attract deposits. Later, as the real estate bubble burst, many credit unions had a large number of non-performing assets, and the high interest rates promised to depositors also exacerbated the operating difficulties of these credit unions.
On December 16, 1997, the People's Bank of China announced that it would close 5 credit cooperatives in Hainan Province that had effectively gone bankrupt. Their creditor and debt relationships would be placed under the custody of Hainan Development Bank. The remaining 29 credit cooperatives in Hainan Province would be closed. 28 companies were merged into overseas distribution companies. These 28 credit unions and the closure of 5 credit unions eventually brought Haifa to its end.
Hainan Bank closed
Hainan Development Bank initially performed well. According to the 1997 "Hainan Yearbook", the interest rate of overseas issuance is 90%, there are no sluggish loans, and agency relationships have been established with 36 banks and 403 branches and branches outside the People's Republic of China and foreign exchange assets. The scale reaches US$170 million. Although the merger of 28 credit unions and the custody of the claims and debts of 5 credit unions have strengthened Haifa's book strength - Haifa's equity capital increased to 10.6 billion yuan, the deposit balance was 4 billion yuan, and the debt was 5 billion However, since most of these credit unions have non-performing assets, Overseas Development Bank has also been burdened with a heavy burden. After the merger, the number of employees of Overseas Development Bank has increased sharply to more than 3,000, which is several times the original number.
After overseas banks merged with credit unions, one of the things they did was to announce that they would only guarantee the payment of principal and legal interest to depositors of the original credit unions. Therefore, many depositors who could charge more than 20% interest in the original credit union can only charge 7% interest after the merger. After the Spring Festival of 1998, the situation began to take a turn for the worse. Many customers whose time deposits have expired have begun to withdraw their principal and interest and transfer them to other banks, saying that they no longer trust overseas banks because of lower interest rates. Subsequently, depositors who had not yet expired also began to withdraw their deposits in advance, and various urban legends emerged at the same time. Lines began to be queued in front of Haifa's business outlets to withdraw money, and large-scale runs occurred. Later, overseas banks stipulated the number of withdrawals per week and the limit for each withdrawal, and gave priority to ensuring the payment of individual depositors. However, due to the serious problem of deposit runs and withdrawals, the frequency and limit regulations have changed again and again, so that depositors can withdraw less and less money each time, and the number of withdrawals per month has also become less and less, exacerbating the dissatisfaction of individual depositors. sentiment, while corporate depositors have had little difficulty withdrawing funds overseas. At this time, other businesses of Overseas Development Bank were basically unable to proceed normally, and responding to depositors' runs on deposits became almost all of Overseas Development Bank's activities during this period. At the same time, due to the burst of the real estate bubble, many loans in overseas accounts are difficult to recover.
In order to reduce depositors’ runs and attract deposits, some sales departments offered a deposit interest rate of 18. However, at this time, no one was willing to deposit deposits in overseas banks. Hainan Bank realized that it could not alleviate the difficulties within Hainan Island, so it wanted to use strength from outside the island to help recover. In May 1998, it established a branch in Shenzhen. However, it did not play a significant role.
On June 21, 1998, the People's Bank of China issued an announcement: Because Hainan Development Bank was unable to pay off its due debts in a timely manner, according to the "Law of the People's Republic of China and the People's Bank of China" and the "Law of the People's Republic of China" *The Company Law of the People's Republic of China and the "Regulations on the Management of Financial Institutions" of the People's Bank of China, the People's Bank of China decided to close Hainan Development Bank and cease all its business activities. The People's Bank of China organized and established a liquidation team in accordance with the law to close and liquidate Hainan Development Bank; Designate the Industrial and Commercial Bank of China to take custody of Hainan Development Bank's claims and debts, and guarantee the payment of its overseas debts and domestic residents' savings deposit principal and legal interest. The remaining debts will be repaid after the organization is liquidated.
Impact
The closure of Hainan Development Bank has caused damage to Hainan’s financial image. Haifa Bank was the first bank in mainland China to be closed due to poor management after the founding of the People's Republic of China, and it is also the only one currently (in 2005). Hainan Province is now (2005) the only province in mainland China that does not have local commercial banks or credit cooperatives (the original credit cooperative was closed for rectification in 2002), and it does not have a single non-bank financial institution. Since then, Hainan's finance has continued to weaken, and banks and other financial institutions have become more cautious about business activities such as loan review. The People's Bank of China provided a re-loan of 4 billion yuan in order to pay off debts such as residents' savings and legal interest. Although Hainan Development Bank met the conditions for bankruptcy when it was closed, it was not called bankruptcy due to the relevant regulations of the People's Republic of China and the State, and the subsequent liquidation work was also different from general bankruptcy liquidation.
Follow-up
In 2000, the China (Hainan) Reform and Development Institute submitted a report to the Hainan Provincial Government, proposing the reconstruction of overseas development. At the end of 2003, Overseas Bank's restructuring plan was submitted to the People's Bank of China. The plan allows foreign capital to participate in equity, and shareholders whose debts issued by Yuanhai exceed 10 million yuan will adopt a debt-for-equity swap to convert debt into equity. But so far, Haifa has not been able to reorganize itself.