(Yicai Global) June 1 -- Yunhe United Rural Bank and 13 other Chinese rural banks have started or will soon be selling their equity to the highest bidder on Alibaba Group Holding’s judicial platform to repay stakeholders’ dud debts although such auctions frequently have no buyers.

An increasing number of rural banks have been put up for auction recently as their shareholders have run into financial difficulties due to the downturn in the economy and wish to sell off their equity, Securities Daily reported today, citing Dong Ximiao, chief researcher of CMB-China Unicom Consumption Finance.

Low profit is one of the main reasons why rural banks are being auctioned, said Tian Lihui, head of the Financial Development Research Institute at Nankai University. Many rural banks are finding it more difficult to recover loans in these difficult times and this combined with limited risk management ability leaves them vulnerable to risks.

Some rural banks were formed because it used to be hard to get a banking license and many of the controlling shareholders have little knowledge of how to manage and operate a commercial bank, Tian said. Many have governance problems such as a lack of prudence in making decisions and this can lead to severe challenges from bad loans in the short-term.

Pingyu Yuchuan County Bank and eight other rural banks held auctions for part of their equity last month but only two got bids.

There were 1,651 rural banks in China as of the end of last year. They had CNY45.7 trillion (USD6.8 trillion) in assets and CNY42.2 trillion in liabilities, each accounting for around 14 percent of the banking sector’s total, according to an insider at the China Banking and Insurance Regulatory Commission.

Editor: Kim Taylor