The China Banking and Insurance Regulatory Commission will deepen reforms for small and medium-sized banks and initiate more steps to mitigate financial risks, a top regulatory official said on April 22.
"We have created a work plan together with several other government departments, and the reform is progressing smoothly. Everyone will see stepped-up reform and restructuring of small and medium-sized banks this year, especially market-oriented restructuring efforts," said Cao Yu, vice-chairman of the CBIRC during a news briefing.
China has more than 4,000 incorporated small and medium-sized banks and their total assets stand at 77 trillion yuan ($10.9 trillion). Most of these lenders have been affected by the novel coronavirus outbreak due to limited management capabilities and distinctiveness of their customers, which are mainly small businesses, farmers and agribusinesses, he said.
On April 3, the People's Bank of China, the central bank, decided to cut the reserve requirement ratio for small and medium-sized banks by 100 basis points. The central bank will also increase re-lending and rediscount quotas by 1 trillion yuan to provide small and medium-sized banks with low-cost funds, said Liu Guoqiang, deputy governor of the PBOC.
The above policies, in addition to differentiated regulations to be applied by the banking and insurance regulator for smaller banks will create favorable conditions for reform and restructuring of these banks.
Last year, the CBIRC launched special rectification actions on shareholders' equity and related party transactions of banking and insurance institutions. It investigated and dealt with more than 3,000 regulatory violations.
The regulator has also rolled out restructuring plans for problematic, high-risk financial institutions such as Baoshang Bank Co Ltd and is pushing ahead with market-oriented restructuring and risk disposal. The problematic shareholders are being discharged in an orderly manner, Cao said.
At the end of the first quarter, the nonperforming loan ratio of China's banking sector was 2.04 percent, up by 6 basis points from the beginning of this year. The regulator will closely follow the trend of nonperforming loans, said Xiao Yuanqi, chief risk officer and spokesperson of the CBIRC.
"The NPL ratio will continue to rise but we do not expect to see a large increase, for we are carrying out work resumption and production in an orderly manner and have taken a number of measures to hedge against and mitigate risks," Xiao said.
The regulator has also urged banks to step up the disposal of nonperforming loans and gradually expand the channels and methods of bad debt disposal. In the first quarter, commercial banks disposed of more than 450 billion yuan of bad loans, up by 81 billion yuan on a yearly basis, he said.
At the same time, the banking and insurance sector has ramped up support for the real economy. The country's new yuan loans amounted to 7.1 trillion yuan in the first quarter, up by 1.3 trillion yuan on a yearly basis. The new yuan loans were mainly directed to the manufacturing, wholesale and retail, and infrastructure sectors, in tranches of 1.1 trillion yuan, 0.9 trillion yuan and 1.5 trillion yuan, respectively.
Financial institutions also increased credit support to small businesses. By the end of the first quarter, the balance of loans to micro and small enterprises, with a total credit line of up to 10 million yuan for each borrower, increased 25.93 percent on a yearly basis. The lending rate of new loans issued by the five largest State-owned commercial banks to such businesses dropped by 0.3 percentage point from last year to 4.3 percent, said Huang Hong, vice-chairman of the CBIRC.
