Caixin
Feb 12, 2020 06:53 AM
FINANCE

Chinese Banks Told to Go Easy on Business Borrowers During Epidemic

Business across the country has been disrupted by measures to contain the deadly disease
Business across the country has been disrupted by measures to contain the deadly disease

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Several local banking industry regulators instructed banks to loosen standards for recognizing companies’ nonperforming loans in a bid to offset damage to businesses and the economy from the coronavirus epidemic.

Local branches of the China Banking and Insurance Regulatory Commission (CBIRC) in Shanghai, Zhejiang and Jiangsu issued notices over the weekend asking local banks to be more tolerant on bad loans and reduce their profit targets. Two-thirds of small businesses said they’d go broke in one to two months, a survey found.

Business across the country has been disrupted by measures to contain the deadly disease, such as extended holidays and restrictions on transport. The virus, which is believed to have originated in Wuhan, Hubei province, in December, has sickened 42,744 people in China as of Tuesday and killed more than 1,000. Nearly 400 cases were reported in 24 other countries.

“This is an extraordinary move in extraordinary times,” said Zeng Gang, deputy director of the National Institution for Finance & Development. As the health crisis unfolds, many companies face difficulties resuming normal operations. Unconventional policy tools like this will help businesses and banks to offset the impacts, Zeng said, though they offer only a temporary solution.

The banking industry watchdog in Shanghai told lenders in the region to relax the nonperforming loan metric for companies that are affected by the virus outbreak. Banks usually classify debts overdue for more than 90 days or even 60 days as nonperforming.

The Shanghai banking regulator told banks to work out policies for a certain lenient period and exempt borrowers from punitive interest or negative credit records during the period.

Regulators also asked lenders to not press companies to repay debts and to continue offering preferential interest rates to support small businesses.

The world’s second-largest economy has felt the pinch of the outbreak. Analysts with consultancy CEBM Group Ltd. estimated that GDP growth could be 1-1.5 percentage points lower than earlier predictions for the first quarter. For the entire year, they forecast GDP growth to be 0.3-0.5 of a percentage point lower than originally forecast.

The outbreak has hit small enterprises especially hard, with most saying they are suffering a severe cash crunch that could put them out of business. A survey of 995 small and midsize companies by Tsinghua University and Peking University found that 34% of respondents said they could survive for only one month on their current savings; one-third said they could keep going for two months; and 17.9% said they could endure three months.

To bolster the already-slowing economy, Chinese authorities have issued a series of policies including liquidity injection and lowering borrowing costs. The Ministry of Finance said Tuesday that China will allow local governments to sell an additional 848 billion yuan ($122 billion) of debt before March, including 558 billion yuan of local government debt and 290 billion yuan of so-called special debt.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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