(Yicai Global) July 18 -- China's main banking regulator has sought to appease residents in central China's Henan province amid rural banks' liquidity issues.

The government has set up a system to verify client information that has potentially been altered by New Wealth Group, the firm behind the scandal involving rural banks in Henan, China Banking and Insurance News reported yesterday, citing an executive at the China Banking and Insurance Regulatory Commission.

First, bank account holders who have small deposits will be refunded. After that, the government will begin distributing deposits exceeding CNY50,000 (USD7,412), per the executive.

The scandal is caused by one company that has been misappropriating retail investors' funds. Police have initially detected that a criminal group behind Zhengzhou-based New Wealth has been illegally absorbing funds through rural banks in Henan.

New Wealth's assets have been frozen by public security organs during the investigation. These assets, and those that may later be discovered, will be used to cover the refunds, Yicai Global learned from an expert.

The executive also addressed ripple effects of the scandal. Some buyers of housing that is not completed yet have stopped paying their mortgages in multiple Chinese regions. Consequently, the regulator will urge the related companies to perform their duties, adding the regulator will also take an active part in reasonably addressing the funding gap, implementing the qualified issuance of loans as well as helping and facilitating these projects to achieve the work resumption and delivery as soon as possible.

The CBIRC will address the funding gap and urge relevant companies to perform their duties, the same executive said. It will promote credit issuance and help facilitate these projects to be completed as soon as possible. The CBIRC will urge lenders to serve their clients well, as well as strengthen communication with their customers, the executive added.

This year, the CBRIC has actively worked with the finance ministry and the People’s Bank of China to accelerate local governments’ issuance of special bonds to replenish small and medium-sized banks’ capital, the official added. The regulator has assigned a special bonds quota of CNY103 billion (USD15.3 billion) to the provinces of Liaoning, Gansu, and Henan as well as the municipality of Dalian in Liaoning province in the first half.

The regulator will green light special bond issuance schemes for some regions in near future, the same source added. The CBRIC expects to finish assigning all of the quota of CNY320 billion by August. 

Editors: Xu Wei, Emmi Laine, Xiao Yi