(Yicai Global) Nov. 24 -- Baoshang Bank has been cleared as China’s first commercial lender allowed to seek a court-led bankruptcy in over four decades.

The China Banking and Insurance Regulatory Commission gave the go-ahead for the insolvent regional lender to apply to enter liquidation proceedings, the watchdog said in a statement yesterday. 

The Inner Mongolia-based bank was taken over by the People’s Bank of China and the CBIRC on May 24 last year due to serious credit risks. Earlier this month, they said the bank had experienced a so-called non-viability trigger event.

After China's reform and opening-up process began in 1978, some financial institutions have gone through company administration but this is the first time that a commercial bank would be under judicial orders to sell its assets and disband.

Baoshang Bank’s investors are on the losing end. On Nov. 13, the bank said it would write off a CNY6.5 billion (USD987.5 million) subordinated capital bond plus CNY586 million (USD89.1 million) in interest, which has made it harder for other small and mid-sized Chinese lenders to issue debt.

The troubled lender's assets already have a new home prepared for them. Mengshang Bank, which began operating in late May, and Huishang Bank will take over Baoshang's business, assets and liabilities.

Editor: Emmi Laine