Chinese Central Bank Calls for Extension of Loan Repayment Deferrals for Small Businesses, “Tolerance” for Non-performing Loans

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The People’s Bank of China (PBOC) has led the release of a new directive calling for an extension of the deferral of repayments on loans taken by Chinese micro-and-small enterprises (MSE) until the middle of next year.

On 14 November PBOC issued the “Notice on Further Expanding the Intensity of Support for Deferral of Principal and Interest Repayments on Loans by Micro-and-Small Enterprises” (关于进一步加大对小微企业贷款延期还本付息支持力度的通知) in conjunction with several other central government authorities, including the Ministry of Finance, the China Banking and Insurance Regulatory Commission and the National Development and Reform Commission.

The Notice calls for banks to “negotiate with enterprises for the deferral of repayments of principal and interest in accordance with the principle of marketisation,” with an especial focus on MSE loans that are set to mature in the final quarter of 2022.

PBOC wants deferrals to be extended to as far as the end of the first half of 2023, in order to help those MSEs that continue to be adversely impacted by the Covid pandemic.

According to the Notice, interest will be calculated as normal for deferred loans, although no penalty fees will be collected. PBOC also said that banks should not “independently downgrade loan risk categories due to pandemic factors, or let them impact credit scoring.”

“Banks must engage in the innovation of deferral of loan products and services, strengthen fintech invigoration, deal with enterprise deferral needs in advance, provide differentiated loan deferral to enterprises, and online processing channels for the extension of loan products and deferral of loans.”

PBOC said that it would also make integrated use of a variety of monetary policy tools to make sure there is rational liquidity in the banking system, while financial regulators will implement a policy of “differentiated tolerance” for MSE non-performing loans.