Think Tank Frets over Impact of Coronavirus on China’s Small Businesses and Regional Banks

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A senior figure from one of China’s leading economics think tanks has called for Chinese banks to help small businesses to weather the impacts of the coronavirus.

In an interview with Securities Journal Zeng Gang (曾刚), vice-chair of the National Institution for Finance & Development (NIFD), said smaller-sized businesses would be amongst those hardest hit by the economic impacts of the coronavirus, which would in turn affect the banking sector.

“Micro, small and medium enterprises will receive the greatest shock, and this will have indirect impacts on the banking sector in two areas,” said Zeng.

“On the one hand, from a policy response perspective, how to expand the vigour of support for micro, small and medium enterprises and reduce their financing costs will become a key mission in future.

“On the other hand, micro, small and medium enterprise operating risks will inevitably transform into credit risks for banks.”

Zeng pointed out that this issue will be particularly pronounced for China’s smaller regional lenders, who make a greater proportion of lending to smaller Chinese enterprises.

“The impact of the [coronavirus] will likely to much more pronounced for small and medium-sized banks than large-scale banks.”

Zeng Gang said that banks would in fact “save themselves” by providing support to certain enterprises struggling with the impacts of the coronavirus, pointing out that short-term interest rate concessions would help to reduce long-term risk.

He outlined several measures for banks to help Chinese businesses deal with the coronavirus:

  1. Banks should use loan extensions to resolve the funding cycle difficulties of enterprises.
  2. Banks should make appropriate adjustments to repayment periods to ease the short-term repayment pressure on enterprises.
  3. Banks should seek to reduce the funding costs of enterprises.

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