China Steps Up Loan Relief, Delays Risk Exposure to Help Economy
(Bloomberg) -- Chinese banks have offered relief on 3.9 trillion yuan ($551 billion) of loans since the outbreak of the coronavirus pandemic to help struggling small businesses and bolster an economy facing its worst slump in four decades.
Lenders have postponed taking principal repayments on 1.44 trillion yuan in loans to almost 800,000 small businesses and pushed back 65.4 billion yuan in interest payments as of May 31, according to a China Banking and Insurance Regulatory Commission official who asked not be named citing internal policy. Banks also rolled over 2.4 trillion yuan in financing to small businesses.
China’s $41 trillion banking system is at the forefront of propping up companies hurt by the outbreak of coronavirus and the impact from its global spread. Authorities are now pushing the financial industry to sacrifice 1.5 trillion yuan in profit this year by offering lower lending rates, cutting fees, deferring loan repayments and granting more unsecured loans to small businesses.
As part of the forbearance polices, banks have been granting payment delays on loans maturing after Jan. 25 and regulators recently extended the deadline on the preferential policy to March 31 next year.
Still, under current accounting rules, banks can book the interest income when they were due even though the actual repayments were delayed, the CBIRC official said, adding that such risks haven’t been reflected in banks’ profits and there will be a lag in the risk exposure until later this year or next year.
Chinese banks reported a 5.6% increase in profit in the first quarter as an expansion in loans and bond investments boosted interest income while payments holidays curbed bad loan recognition. By comparison, the economy contracted 6.8%.
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With assistance from Bloomberg