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Chinese depositors left in dark as three local banks freeze deposits

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By Engen Tham

SHANGHAI (Reuters) - Three banks in China's central Henan province have frozen at least $178 million of deposits, offering scant information on why or for how long, leaving firms unable to pay workers and individuals locked out of savings, depositors told Reuters.

Yu Zhou Xin Min Sheng Village Bank, Shangcai Huimin Country Bank and Zhecheng Huanghuai Community Bank froze all deposits on April 18, with all three telling customers they were upgrading internal systems. The banks have not issued any communication on the matter since, depositors said.

None of the three banks responded to Reuters' emails or phone calls seeking comment.

While nominally small, China's numerous local banks have outsized significance because they lend to small and mid-sized firms so their activity can be an indicator of the health of the economy, the world's second-biggest after the United States.

Bank earnings and asset quality are widely expected to deteriorate due to reduced business activity brought about by strict COVID-19 containment measures, raising the prospect of economic contraction in the second quarter of the year.

Depositors of the three banks told Reuters they had been communicating with each other via messaging app WeChat about how to retrieve funds. Some posted screenshots of frozen accounts and shared conversations with bank staff.

Some posted videos of protests outside bank branches, while others said they had travelled to the banks' headquarters in search of an explanation only to be turned away by police.

The China Banking and Insurance Regulatory Commision, which was cited in media reports on May 1 as saying it was looking into the matter, and the People's Bank of China, the central bank, did not respond to faxed requests for comment.

ANGER

Depositors from the southern Zhejiang province communicating over WeChat compiled a spreadsheet seen by Reuters in which they self-reported 1.2 billion yuan ($177.55 million) in frozen funds across the three banks.

As the banks have customers across China, magazine Caixin on April 30 reported the frozen amount could total $1.5 billion.

Jerry Chang, owner of a factory in Hubei province, cannot access his over 6 million yuan deposited at Yu Zhou Xin Min Sheng Village Bank.

"Not being able to withdraw money has a huge impact on the operation of our factory, including procurement and workers' wages," said Chang, who used the bank because of its marginally higher interest rate of 1.85%.

Tony Qian, an investment consultant from Zhejiang province, cannot access the 20 million yuan he put in Yu Zhou Xin Min Sheng Village Bank that he had been saving to buy property.

"The thing I'm most angry about is ... no one has explained anything to us," said Qian.

(Reporting by Engen Tham; Editing by Sumeet Chatterjee and Christopher Cushing)

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