China regulators pushing banks to make more loans

China’s central bank and a top financial regulator are urging local banks to extend more loans to companies in a bid to resuscitate the economy from recent Covid-19 lockdowns that have badly crippled consumer spending and business activity. The People’s Bank of China (PBoC) and China Banking and Insurance Regulatory Commission (CBIRC) on Monday (May 23) held a meeting with representatives from 24 top lenders and encouraged them to provide more liquidity to small firms as well as companies involved in green development, technological innovation, energy supply and irrigation. The call came after China’s new loans fell by over half to 645.4 billion yuan (US$96.7 billion) in April from the 1.47 trillion yuan extended a year ago. CBIRC said banks should not worry about their non-performing loan (NPL) ratios, which it said are currently in a reasonable range. Analysts gauging the announcement said the directive’s effectiveness will depend mainly on China’s epidemic situation in May and June, as well as companies’ appetite for making new investments in a depressed economic environment. While Shanghai started easing its anti-epidemic rules this month, about 390,000 people in 1,584 lockdown zones still could not leave their homes as of Wednesday, while 1.38 million people in 8,058 partial lockdown zones could not leave their villages. The remaining 21.46 million people in 61,657 restricted zones are still under orders to restrict their social activities. With about several hundred positive cases per day, the largest commercial city in China plans to ease more Covid rules and allow its people to return to normal life by June. In Beijing, lockdown measures are in place in many districts as the capital city has not been able to cut off virus transmission chains at the community level. On Tuesday, it reported 47 new cases. On May 13, the PBoC said China’s total “social” financing, a broad measure of liquidity in the economy, dropped to 910.2 billion yuan in April from 1.86 trillion yuan a year ago. Loans to residents fell 217 billion yuan last month, compared with an increase of 528.3 billion yuan in the same period of last year. The Industrial and Commercial Bank of China in Shanghai. Photo: AFP “China’s property sales have faced a difficult time in April and May while it is likely that property investment will decline in the second quarter,” said Ma Hong, an analyst at Zhixin Investment Research Institute. Ma said the easing of property curbs in first- and second-tier cities would help boost sales and residential mortgage loans but the effects would be seen and felt only in the later period of the year. Property sales slumped 42.5% year-on-year to 74.17 million square meters in April, according to the National Bureau of Statistics. Investment in property development dropped 10.1% over the period, according to the bureau’s data. “New loans weakened sharply in April as many companies have increased operational difficulties and lost investment confidence amid the Covid-19 epidemic and rising raw material costs,” Wang Qing, chief macroeconomy analyst at Golden Credit Rating International. “The epidemic also hurt property sales and residential loans.” Wang said new loans would probably rebound in May from April as Shanghai’s epidemic situation is improving. He said the growth momentum of new loans was a key factor to determine whether China could achieve its full-year economic growth target of 5.5%. The PBoC and CBIRC’s directive to commercial banks shows the government is still gunning for that mark. Monday’s meeting, chaired by PBoC governor Yi Gang, said the central bank had already cut reserve requirement ratios and loan prime rates so it was time for banks to take the initiative to lend more money to companies. “Many market entities are facing difficulties as the downward pressure on the economy continues to increase,” said a statement from the meeting. “The complexity, severity and uncertainty of the monetary and credit works are increasing.” Yi Gang, governor of the People’s Bank of China, is calling on banks to lend more. Photo: AFP / Sonny Tumbelaka Significantly, it said banks should allow small businesses, truck drivers and mortgage and consumer loan borrowers to delay their loan payments. On Monday, the PBoC also held a videoconference and urged the banking sector to optimize their credit structures, lower financing costs for companies and provide more loans to small-and-micro firms. China’s regulators should encourage banks to increase lending, Premier Li Keqiang said in an executive meeting of the State Council on the same day. He said the government would start constructing projects for irrigation facilities, transportation hubs and residential community renovation, as well as guide banks to provide long-term loans for these projects. According to a research report published by Ernst & Young on May 18, 42 Chinese banks saw their non-performing l

China regulators pushing banks to make more loans

China’s central bank and a top financial regulator are urging local banks to extend more loans to companies in a bid to resuscitate the economy from recent Covid-19 lockdowns that have badly crippled consumer spending and business activity.

The People’s Bank of China (PBoC) and China Banking and Insurance Regulatory Commission (CBIRC) on Monday (May 23) held a meeting with representatives from 24 top lenders and encouraged them to provide more liquidity to small firms as well as companies involved in green development, technological innovation, energy supply and irrigation.

The call came after China’s new loans fell by over half to 645.4 billion yuan (US$96.7 billion) in April from the 1.47 trillion yuan extended a year ago. CBIRC said banks should not worry about their non-performing loan (NPL) ratios, which it said are currently in a reasonable range.

Analysts gauging the announcement said the directive’s effectiveness will depend mainly on China’s epidemic situation in May and June, as well as companies’ appetite for making new investments in a depressed economic environment.

While Shanghai started easing its anti-epidemic rules this month, about 390,000 people in 1,584 lockdown zones still could not leave their homes as of Wednesday, while 1.38 million people in 8,058 partial lockdown zones could not leave their villages. The remaining 21.46 million people in 61,657 restricted zones are still under orders to restrict their social activities.

With about several hundred positive cases per day, the largest commercial city in China plans to ease more Covid rules and allow its people to return to normal life by June. In Beijing, lockdown measures are in place in many districts as the capital city has not been able to cut off virus transmission chains at the community level. On Tuesday, it reported 47 new cases.

On May 13, the PBoC said China’s total “social” financing, a broad measure of liquidity in the economy, dropped to 910.2 billion yuan in April from 1.86 trillion yuan a year ago. Loans to residents fell 217 billion yuan last month, compared with an increase of 528.3 billion yuan in the same period of last year.

The Industrial and Commercial Bank of China in Shanghai. Photo: AFP

“China’s property sales have faced a difficult time in April and May while it is likely that property investment will decline in the second quarter,” said Ma Hong, an analyst at Zhixin Investment Research Institute.

Ma said the easing of property curbs in first- and second-tier cities would help boost sales and residential mortgage loans but the effects would be seen and felt only in the later period of the year.

Property sales slumped 42.5% year-on-year to 74.17 million square meters in April, according to the National Bureau of Statistics. Investment in property development dropped 10.1% over the period, according to the bureau’s data.

“New loans weakened sharply in April as many companies have increased operational difficulties and lost investment confidence amid the Covid-19 epidemic and rising raw material costs,” Wang Qing, chief macroeconomy analyst at Golden Credit Rating International. “The epidemic also hurt property sales and residential loans.”

Wang said new loans would probably rebound in May from April as Shanghai’s epidemic situation is improving. He said the growth momentum of new loans was a key factor to determine whether China could achieve its full-year economic growth target of 5.5%.

The PBoC and CBIRC’s directive to commercial banks shows the government is still gunning for that mark.

Monday’s meeting, chaired by PBoC governor Yi Gang, said the central bank had already cut reserve requirement ratios and loan prime rates so it was time for banks to take the initiative to lend more money to companies.

“Many market entities are facing difficulties as the downward pressure on the economy continues to increase,” said a statement from the meeting. “The complexity, severity and uncertainty of the monetary and credit works are increasing.”

It has been a tough eight months for Yi Gang, the relatively new governor of the People's Bank of China. Photo: AFP / Sonny TumbelakaIt has been a tough eight months for Yi Gang, the relatively new governor of the People's Bank of China. Photo: AFP / Sonny Tumbelaka
Yi Gang, governor of the People’s Bank of China, is calling on banks to lend more. Photo: AFP / Sonny Tumbelaka

Significantly, it said banks should allow small businesses, truck drivers and mortgage and consumer loan borrowers to delay their loan payments.

On Monday, the PBoC also held a videoconference and urged the banking sector to optimize their credit structures, lower financing costs for companies and provide more loans to small-and-micro firms.

China’s regulators should encourage banks to increase lending, Premier Li Keqiang said in an executive meeting of the State Council on the same day. He said the government would start constructing projects for irrigation facilities, transportation hubs and residential community renovation, as well as guide banks to provide long-term loans for these projects.

According to a research report published by Ernst & Young on May 18, 42 Chinese banks saw their non-performing loan (NPL) ratios come down to 1.37% last year from 1.5% in 2020.

At the same time, the international accounting firm said Chinese banks’ NPL ratios for property developments grew to 2.62% from 1.71% over the same period, and that they should remain cautious in their loan growth this year.

However, Mao Hongjun, head of the CBIRC’s inclusive finance department, said in a media briefing this week that commercial banks should not be “over-worried” by their NPL ratios, which increased by 0.03 percentage points in April from 1.82% in the first quarter. Mao said Chinese banks maintained a strong ability to manage risks.

Read: China cranks up stimulus to revive growth hopes

Follow Jeff Pao on Twitter at @jeffpao3