Premier Li Keqiang has called for Chinese banks to cap their profits in 2020 in order to improve financial inclusion and keep the economy on an even keel in the wake of the COVID-19 pandemic.
At a regular meeting of the State Council held on 17 June, Li outlined arrangements for “guiding financial institutions to further make rational profit transfers to enterprises, assist in the stabilisation of economic fundamentals, accelerate the implementation of fee reduction policies and reduce the burden on market actors.”
According to Li key focal points of policy in future will be to:
- Seize rational profit transfer as the key, protect market entities, stabilise economic fundamentals. Further provide discount rate loans via downward guidance of loan rates and bond rates, implement a series of policies for deferrals on repayments of principal and interest for loans to micro, small and medium-sized enterprises, supporting the provision of collateral-free loans to micro and small-enterprises and reductions to bank fees. Drive the financial system to make full-year rational profit transfers of 1.5 trillion yuan to various enterprises.
- Make comprehensive usage of required reserve cuts, re-lending and other tools to maintain rationally ample market liquidity. Expand the vigour of efforts to resolve financing difficulties; ease funding pressure for enterprises and achieve increases in the scale of both new renminbi loans and total social financing compared to last year.
- Abide by market principles, improve policy tools and related mechanisms for funds to directly reach enterprises. Ensure that new funds mainly flow towards the manufacturing sector and the standard services sector, and MSME’s in particular. Prevent “empty transfer” of funds and prevent financial risk.
- Strengthen the ability and motivation to provide financial services to MSME’s. Rationally supplement capital of small and medium-sized banks. Oversee improvements by banks to internal assessment and incentive mechanisms, and increase the weighting of financial inclusion in assessments. Expand the vigour of disposal of non-performing loans. Strictly prohibit the addition of unreasonable conditions when issuing loans. Pragmatically achieve marked reductions in real financing costs for market actors, and further reduce the difficulty of obtaining loans.
According to sources speaking to Bloomberg financial regulators in China have also requested that some banks keep profit growth in single digit territory this year, in order to ensure that financing costs remain low.