Coronavirus news in China: loan delay due to virus problem

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Chinese financial regulators will allow the country’s lenders to delay recognition of bad debts for small businesses reeling from the deadly coronavirus outbreak, granting a temporary stay on billions of yuan in debt.

Qualified small and medium-sized businesses across the country with principal or interest due between Jan.25 and June 30 may request a postponement until the end of the second quarter, China’s banking and insurance regulator said in a joint statement with the central bank on Sunday. In Hubei province, the center of the outbreak, the waiver applies to all businesses, including large companies, according to the declaration.

Chinese banks are taking extraordinary steps to avoid recognizing bad debts, seeking to protect themselves and cash-strapped borrowers from the economic fallout of the outbreak, Bloomberg News reported last week. Regulators have told lenders not to downgrade loans with missed payments or report delinquencies to the country’s centralized credit scoring system until the end of June, the statement said.

The push by banks and regulators to dampen the deteriorating wave of debt is part of a larger effort by President Xi Jinping’s government to prop up the Chinese economy, which some forecasters may experience a rare quarterly contraction to start 2020. Gross domestic product could decline by 2.5% in the first quarter, Economists at Nomura Holdings Inc., led by Lu Ting, said in a report on Saturday, after the country’s manufacturing sector reported record activity in February.

In addition to injecting billions of yuan into the banking system to facilitate lending to lenders, the authorities have cut interest rates, cut taxes, and pledged to adopt more “proactive” tax policies.

S&P Global estimated last month that a protracted health emergency could push China’s NPL ratio to more than triple to around 6.3%, equivalent to an increase of 5.6 trillion yuan ( $ 800 billion) of bad debt. With the relaxation of standards for recognizing bad debts, the rating agency predicted that “bad” loans could peak at 11.5% of GDP in the aftermath of the epidemic.

Chinese bank stocks rebounded. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. both rose 1.9% at 10:36 a.m. in Hong Kong.

Nonetheless, the banking regulator said lenders should classify loans as non-performing if the borrower does not repay after resuming operations for a period of time, the statement said. He also urged banks to cut average financing costs for small businesses in Hubei Province by more than a percentage point this year.

– With the help of Jessica Sui and Jun Luo

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