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China will lower the provision coverage ratio of small and medium-sized banks to better serve smaller businesses

Zhang Yue
Updated: Apr 22,2020 12:12 AM

The State Council’s executive meeting chaired by Premier Li Keqiang on April 21 decided to give greater weight to inclusive financing in evaluating the performance of financial institutions, and lower the provision coverage ratio of small and medium-sized banks in order to boost financial services for micro and small firms.

The Chinese government puts great emphasis on the economic development amid the global spread of COVID-19. General Secretary Xi Jinping stressed the imperative to stay alert and be prepared for dealing with the shifting realities for a long time to come, and to redouble efforts in pursuing economic and social development. Premier Li Keqiang repeatedly urged upgrading financial services in support of the real economy.

Since the start of the COVID-19 situation, People’s Bank of China, China’s central bank, has cut the required reserve ratio three times, releasing 1.75 trillion yuan in liquidity to better support smaller businesses.

“We must scale up financial support for the real economy, especially the micro, small and medium-sized companies, to help them overcome the difficulties,” Premier Li said.

It was decided on April 21 that the regulatory requirement for the provision coverage ratio of small and medium-sized banks will be lowered by 20 percentage points, to free up more credit resources and boost the capacity for serving micro and small companies.

To encourage financial institutions to better serve micro and small businesses, the meeting decided to raise the weight of inclusive finance to no less than 10 percent in the integrated performance evaluation of the branches and subsidiaries of financial institutions in the banking sector, to incentivize more lending to micro and small firms.

“Financial departments must adjust and adapt the support policies in light of the changing COVID-19 situation and economic conditions. The policies introduced need to be targeted and robust,” Premier Li said.

To ease the rent burden on micro, small and self-employed businesses, the meeting called for a three-month rent exemption in the first half of this year for such firms in the service sector that are renting State-owned properties.

The meeting urged State-owned enterprises, especially those directly under central management, and public institutions such as colleges, universities and research institutes, to take the lead in offering such rent relief. State-owned banks will be encouraged to extend pledge loans at concessional rates to such borrowers according to their needs.