HENAN (BLOOMBERG) - Chinese authorities will repay more victims of the nation's biggest bank scam as it seeks to placate angry customers who have been denied access to tens of billions of yuan of deposits for months.

Clients from the four rural banks in the central province of Henan and one in Anhui with deposits of up to 100,000 yuan (S$20,600) will be repaid from July 25, according to the local offices of the China Banking and Insurance Regulatory Commission.

Authorities began to repay individuals with deposits of below 50,000 yuan last Friday (July 15), after hundreds of disgruntled bank customers took to the streets to ratchet up pressure on the local governments over the past two months.

Arrangements for those with higher amounts of savings will be subject to further notice, the watchdog had said.

An official probe into the case had found that Henan Xincaifu Group Investment Holding, a private investment firm with stakes in the five lenders, colluded with bank employees to take deposits and marketed financial products via online platforms, before transferring the money by fabricating lending agreements.

The police had taken some suspects into custody and seized and frozen funds and assets involved in the case.

Most of the victims were unaware of the illicit activities of Xincaifu and never received high interest or subsidies on their savings, the CBIRC told an affiliated newspaper on Sunday.

The regulator had said it won't make repayments for accounts that are suspected to have involved illegal activities or received high interest from other channels.

Beijing has started to pare back the implicit government backstop for banks to reduce risky behaviour and maintain long-term stability of the financial system.

But officials are facing a difficult balancing act: If the public loses confidence in banks' ability to survive on their own or state support in the event of liquidity stress, it could precipitate exactly the type of crisis authorities are trying to prevent.

China has nearly 4,000 small and medium-sized lenders that collectively control almost US$14 trillion (S$19.5 trillion) in assets. But confidence in these banks has waned since 2019, when the government seized a lender for the first time since 1998 and imposed losses on some creditors.