© Reuters.

BEIJING (Reuters) – China’s northern city of Shenyang has encouraged local state-owned companies to increase stakes in Shengjing Bank, which Evergrande Group has a 36% stake in, according to statement by the bank on Thursday.

The remarks were made by Gao Wei, deputy mayor of Shenyang, the capital of Liaoning province, in a meeting with bank executives and local financial and state asset regulators, on Thursday, according to the statement.

Gao said the city government values the reforms in Shengjing bank and will strengthen the Communist Party leadership in the bank to help it develop into “a good bank,” according to the statement.

He did not elaborate on when and by how much the stake purchase will be arranged.

Controlled by China’s most indebted developer Evergrande, the financial health of Shengjing has been put under spotlight since May, after financial news outlet Caixin reported that country’s top banking watchdog was probing connected transactions worth over 100 billion yuan ($15.45 billion) between Evergrande and the bank.

In a statement on July 5, Evergrande said its financial business with Shengjing complies with legal requirements.

Shengjing reported a net profit of 1.2 billion yuan in 2020, down 78% from a year earlier.

The bank’s non-performing loan ratio stood at 3.26% by the end of 2020, higher than the industry-wide average of nearly 2%.

Despite repeated statements on its sound financing ability, investors continued to dump shares and bonds of Evergrande amid a government crackdown on developers’ funding sources.

On Friday, Evergrande shares were on track for their biggest weekly drop since plunging more than 26% in late September 2011.

Some banks in Hong Kong, including HSBC and Standard Chartered (OTC:), also decided to decline loans to buyers of Evergrande’s incomplete residential projects, Reuters reported.

($1 = 6.4716 )

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