Chinese financial regulators will offer guarantees for at least 70% of the funds owed to certain creditors and corporate depositors of Baoshang Bank Co. Ltd. after taking over the bank in view of severe credit risks, Caixin reported May 27, citing sources.

The People's Bank of China and the China Banking and Insurance Regulatory Commission said all of the bank's corporate deposits and interbank debts of up to 50 million yuan would be guaranteed, while those exceeding 50 million yuan will be negotiated over with creditors, the publication reported, citing a statement from the regulators in Chinese.

Baoshang Bank will likely repay corporate creditors at least 80% of their deposits and other creditors at least 70%. The bank has reportedly halted trading in its pledge-style repurchase agreements and negotiable certificates of deposit to prevent a run on the bank.

The regulators took over Baoshang Bank, the first private lender in China to be directly taken over in 20 years, over concerns about the bank's "severe credit risk". The takeover was prompted by efforts to break up tycoon Xiao Jianhua's business empire and to contain financial risks, according to a May 25 Caixin report, citing sources.

Baoshang Bank is reportedly a key piece of Xiao's business empire, with a close relationship with Xiao's conglomerate Tomorrow Holdings. A source said the bank helped Tomorrow Holdings put together 150 billion yuan of funding through shady practices, such as loans packaged as wealth management products. Tomorrow Holdings reportedly owns at least a 70% stake in Baoshang Bank through various subsidiaries.

Xiao has reportedly been placed under graft investigation by Chinese authorities.

As of May 27, US$1 was equivalent to 6.90 Chinese yuan.