In the battle to keep millions of China’s smaller businesses afloat, banks are counting on being allowed another round of exceptions for borrowers falling behind on payments, reported Bloomberg.
The regulator and some lenders have discussed extending loan relief beyond a June 30 deadline for corporates hurt by the pandemic, said Bloomberg sources. The guidance from Beijing is to offer flexibility on principal and interest payments. Banks would see a surge in bad loans in the second half without such measures, weakening their ability to keep credit flowing, according to bankers and analysts.
China’s $41 trillion banking system is at the forefront of propping up companies hit early this year by the local outbreak of coronavirus and the impact from its global spread. Called on to rescue the economy, lenders led by Industrial & Commercial Bank of China more than doubled loans to businesses in the first quarter, while deferring and rolling over RMB 1.5 trillion ($211 billion) in repayments.
With few signs of a swift economic recovery, a June end to the government’s bad-loan holiday would crystallize the damage to bank balance sheets. Their plight is a window into the stresses emerging around the world as the economic cost of the pandemic becomes clearer, and an initial round of emergency lending and payment deferrals falls short.