Police in China arrested a woman after she spread a rumor via WeChat that “the local rural commercial bank is going bust,” leading to hundreds of customers rushing to withdraw cash from the lender in Henan province in the latest case to hit small regional banks during the economic slowdown.

The 29-year-old female, surnamed Wang, was detained by police in Yichuan county after “concentrated cash withdrawals” from Yichuan Rural Commercial Bank. She is expected to be punished with five days in a detention center for “fabricating facts and disrupting social order.”

The bank did not specify the reason for the sudden demand for cash withdrawals, but confirmed on Wednesday that “services and operation are running normally.”

The local Communist Party discipline authority said in a statement on Wednesday that the bank’s chairman, Kang Fengli, 54, had been placed under investigation for possible serious violations of discipline and law.

Regulators said the bank was “in normal operation with sufficient capital,” while the notice jointly issued by local branch of the People’s Bank of China and the China Banking Regulatory Commission also issued on Wednesday confirmed that all deposits at the bank are covered by insurance.

Yichuan Rural Commercial Bank did not specify the reason for the sudden demand for cash withdrawals, but confirmed on Wednesday that “services and operation are running normally.” (Picture: Reuters)

The statement came a day after the Yichuan Communist Party committee and the Yichuan county government confirmed on Tuesday that the bank had witnessed an increase in the number of the over-the-counter transactions at all its branches, which resulted in “slow processing.”

Local authorities warned that spreading rumors about the financial system is “a behavior distorting financial order, endangering economic and financial security and even threatening social stability.”

The incident came at a time of growing signs of stress within China’s small regional banks after the authorities were forced to take over or recapitalize at least three large regional lenders in the last six months, namely Baoshang Bank in Inner Mongolia, the Bank of Jinzhou in the rust belt province of Liaoning and Hengfeng Bank in Shandong province.

Central bank governor Yi Gang said last month that some Chinese regional banks had “engaged in blind expansion” in recent years, expanding beyond their home bases and chasing “risky projects” without proper control.

Yichuan Rural Commercial Bank, which has 33 branches in the county, was incorporated 10 years ago as a consolidation of several rural credit co-operatives. According to its 2018 annual report, the bank had 53 billion yuan (US$7.5 billion) in total assets at the end of 2018 with a non-performing loans ratio of 2.95%.

China Chengxin Credit Rating Group, the country’s largest ratings agency, downgraded the bank’s rating at the end of July, citing increasing bad debts.

Linshang Bank, a local bank in the city of Linyi in Shandong province, suffered a similar run in August 2017, with the local police eventually detaining 11 people for causing the panic.

China’s central bank launched a nationwide deposit insurance system in 2015 that covers individual deposit accounts up to 500,000 yuan (US$70,000).