(Writes through; adds more details)
SHANGHAI, June 16 (Reuters) - The Chinese government's takeover of Baoshang Bank has caused some pain but prevented bigger financial and social instability, and regulators will restructure the lender as soon as possible, a newspaper affiliated to China's central bank said on Sunday.
Chinese regulators had completed debt repayment and transfer for Baoshang bank's big institutional and interbank clients as of June 7, and will move on to verify and evaluate the lender's assets ahead of the restructuring, according to the Financial News article, published on the People's Bank of China's (PBOC) website.
Chinese financial regulators took control of Inner Mongolia-based Baoshang Bank on May 24 due to "serious" credit risks, rattling domestic markets and prompting PBOC to inject cash into the banking system.
The article said that since the takeover, individual savings have been stable, and there has been no bank run, showing depositors are supportive of the takeover measures. In addition, 99.98% of Baoshang Bank's institutional creditors were fully repaid.
Although a very small portion of the lender's clients didn't get 100% guarantee of their principals, it's a lesson to those who have been aggressively buying high-yielding investment products with little risk control, according to the article.
There has been "a little bit of pain," but if regulators turn a blind eye to moral hazards, "potential financial risks will get bigger and bigger, and morph into systemic risks," it said.
Baoshang Bank is operating normally, and is witnessing less-than-expected net asset outflows, according to the article. The next step would be to carry out market-oriented restructuring to turn Baoshang Bank into a fully healthy and stable lender, it said.
Since the takeover of Baoshang Bank, regulators have taken a series of measures to ease liquidity stress, and repeatedly said risks at small financial institutions are manageable.
On Friday, sources told Reuters that China's securities watchdog has surveyed Chinese brokerages and fund managers for signs of financing stress. (Reporting by Samuel Shen Brenda Goh and Cheng Leng Editing by Keith Weir)