The government of China’s Sichuan province said Friday it was backing out of a loan to a bank that collapsed because it was not solvent enough.
The People’s Bank of China said it will forgive the loan to Hong Kong-based First Capital Holdings after it failed to repay the money, which the government said was more than $400 million.
The bank was one of several to collapse in Sichu, a poor region in northeast China, in March and April.
The country is still struggling with an economy in its fourth year of recession.
The state-run China Daily newspaper reported that the government had already forgiven First Capital’s debts.
The loan was supposed to be repaid in the first quarter of next year, but the bank had failed to do so.
The government is hoping the loan will help stabilize the economy.
Hong Kong-listed First Capital is based in Hong Kong and was the financial hub for China’s financial services industry.
Its founder, Hong Kong businessman John Tsang, is the nephew of late British Prime Minister Margaret Thatcher.
First Capital, which is based on a Singapore property and shipping business, said in a statement it is now fully cooperating with authorities in Hong, adding that it would be able to resume its normal operations “as soon as possible.”
It was not immediately clear whether the Chinese government was planning to issue a similar loan to another bank in China, or whether the government is continuing to pressure the Hong Kong government to repay First Capital.
First Capital, based in Szechuan province, has said it has secured more than a billion yuan ($43 million) in loans and investments since the collapse of the Hong-based lender in March.