BEIJING (Reuters) - China’s troubled Baoshang Bank will be taken over by local governments and a group of state firms, a central bank official with direct knowledge of the matter said, as Beijing looks to shore up some of the country’s weakest lenders.

FILE PHOTO: People walk past a branch of Baoshang Bank in Beijing, China September 24, 2019. REUTERS/Stringer

Financial regulators took control of Inner Mongolia-based Baoshang Bank last May, citing serious credit risks. That takeover rattled domestic markets, pushing up interbank funding costs for some smaller lenders and prompting the central bank to inject cash into the banking system to prevent contagion risks.

The governments of China’s Inner Mongolia Autonomous Region and Baotou, a major city in the region, will lead the acquisition of at least a 50% stake in a reorganized Baoshang Bank, according to the official, who declined to be identified given the sensitivity of the matter.

State firms in Inner Mongolia will also participate in the takeover, the official said.

The People’s Bank of China (PBOC) said in November that asset and capital verification work at Baoshang was nearly complete, and that it would restructure the lender as soon as possible.

Other strategic investors in the revamped Baoshang Bank include Huishang Bank 3698.HK, China Construction Bank (CCB) 0939.HK601939.SS and a national deposit insurance fund managed by the central bank, the official said.

The official did not elaborate on the value of the investment or specific shareholding details.

Reuters reported earlier this month that Huishang Bank planned to take over four branches of Baoshang under a state-led reorganization.

Huishang also said recently that it plans to invest up to 3.6 billion yuan ($524.29 million) to hold up to 15% of a newly created provincial commercial bank, without naming the lender, although the sources said at the time that the investment was linked to the Baoshang reorganization.

The Inner Mongolia and Baotou governments could not be reached for comment. Baoshang and Huishang declined to comment. CCB didn’t reply to a Reuters request for comment.