CBIRC Says Targets for Lending to Private Enterprise Are “Directional,” Credit Standards Haven’t Been Loosened

The Chinese banking regulator has said that targets for lending to private enterprise are merely “directional” in nature, and will not lead to a loosening in credit standards.

The China Banking and Insurance Regulatory Commission (CBIRC) recently unveiled “1-2-5” targets for lending to private enterprise, in a bid to expand the availability of funds to the private sector.

When unveiling the targets CBIRC chair Guo Shuqing said that while China’s private sector accounts for an over 60% share of the national economy, it comprises just 25% of the current banking sector lending balance.

According to Guo the 1-2-5 targets will mean that “out of new loans to companies, large-scale banks shall make at least 1/3 of such loans to private enterprise, small and medium banks must make 2/3 of such loans to private enterprise, so that in three years time lending to private enterprise accounts for no less than 50% of all new loans to companies.”

The launch of China’s first official goals for private lending triggered a tumble in Shanghai-listed Chinese banking stocks, which fell by 1.4% on 9 November, due to concerns that a concerted expansion in credit will trigger a new round of non-performing loans and risk.

CBIRC officials have since sought to reassure markets about the impact of the lending targets, with one source telling www.cnstock.com that the “1-2-5” targets are “directional” in nature, and not “hard assessment targets.”

“The requirement is not being made that every bank satisfy [the targets], and lending standards have also not been loosened.

“Regulation will also involve lending standard guidance,and banks should provide lending support to private enterprise that is equal to that for state-owned enterprises in accordance with the principles of the market and the rule of law.”

Zeng Gang (曾刚), vice-head of the National Institution for Finance & Development (国家金融与发展实验室), said that the 1-2-5 targets do not require that banks increase total credit, and do not signal “comprehensive watering” or a shift in deleveraging policy.

According to Zeng they simply call for a withdrawal of funds originally used to support other areas or entities, and instead guiding these funds towards private enterprise.

“The targets will not have an excessive impact upon non-performing loan rates of banks…this year the overall performance of the banking sector has been strong, and many listed banks have seen their NPL ratios decline.

“Even if there has been a significant rise in risk, given the currently strong profits of banks they are capable of bearing it.

“Looking at the long-term, if we can save some private enterprises who have development potential but have met with temporary difficulties, this can avoid the formation of potential non-performing loans in future.”

Zeng further pointed out that the 1-2-5 targets are part of a set of regulations and policies that can effectively reduce bank credit risk.

“The first is perhaps support policies for banks to meet the 1-2-5 targets,” said Zeng.

“The second is the expansion of the MLF collateral scope and other measures that are of benefit to banks obtaining low-cost funds to support private enterprise.

“The third is that we have already established a comparatively complete financing guarantee system, to split up the excessive risks that could arise for banks.”

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Private Sector Accounts for over 60% of Economy Yet Just 25% of Bank Loans: CBIRC Head

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