Local Finance Authorities around China Loosen Non-performing Loan Standards in Response to Coronavirus Outbreak

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The financial authorities of local governments around China are loosening their recognition standards for the non-performing loans of certain enterprises within their jurisdictions that are impacted by the spread of the novel coronavirus.

21st Century Business Herald reports that this trend has become especially pronounced in the key economic regions of the Yangtze River Delta, the Pearl River Delta and Beijing.

“Regulators have requested that banks reduce interest rates or make concessions for enterprises affected by the disease,” said one commercial banker based in the eastern part of the country.

On 10 February the Shanghai Banking and Insurance Regulatory Office (上海银保监局) issued a notice stating that local banks would not be required to categorise loans that are 90 days or 60 days overdue as non-performing, if such loans were made to enterprises that have temporarily lost revenue sources as a result of the impacts of the coronavirus.

The Shanghai banking regulator also called for local banks to temporarily reduce or cancel the interest payments on such loans, and refrain from penalising affected enterprises in order to avoid adversely affecting their credit records.

On the same date the Jiangsu province banking regulator issued a notice calling for local banks to refrain from including late payments on loans made to certain enterprises in late payment statistics during efforts to contain the spread of the coronavirus.

The Jiangsu regulator said that depending upon circumstances it would further loosen “tolerance levels” for the non-performing loans of micro-and-small enterprises during the coronavirus containment period.

Just several days previously on 7 February the Zhejiang province financial regulator called on banks to refrain from penalising affected enterprises that are unable to repay their loans during the coronavirus containment period, in order to keep their credit records intact.

Fitch Ratings has said that the the spread of the coronavirus could put heavy pressure on the asset quality of Chinese banks, particularly given its impact on the transportation, accommodation and entertainment sectors.

A report from Wanlian Securities expects the impact of the coronavirus on the asset quality of the Chinese banking system to be limited, however, given that lending to such sectors is limited, while these sectors themselves are not highly concentrated.

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