China’s banking regulator orders commercial banks to relax NPL ratio for small private companies
Mar 14, 2019 (China Knowledge) - The China Banking and Insurance Regulatory Commission (CBIRC) has ordered commercial banks to relax their non-performing loan (NPL) ratio for loans made to small companies in the latest move by the Chinese government to support private companies amid an economic slowdown.
According to the CBIRC, commercial banks are allowed to loosen NPL ratio by 3 percentage points and the relaxation will apply to companies with credit lines of under RMB 10 million from banks.
While the CBIRC had previously issued guidance to banks regarding NPLs, with increase in tolerances generally capped at 2 percentage points, this is the first time the CBIRC had made a written requirement to the banks.
The recent relaxation in NPL ratio could inject up to RMB 1.8 trillion of fresh capital into small companies.
Private companies currently make up 50% of tax revenue and 80% of jobs in urban areas in China. As the Chinese policymakers deal with a slowing economy, policymakers have placed an increased focus on these private companies to boost investment in them in order to stem its economic slowdown.
As of end 2018, NPL ratio of commercial banks stood at 1.83% with the bulk of distressed loans coming from the manufacturing, real estate and retail sectors.
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