Sichuan province joined a line of local governments to issue special-purpose bonds (SPBs) to raise money for recapitalizing cash-strapped small and midsize banks, reported Caixin.
The southwestern Chinese province will issue RMB 11.4 billion ($1.76 billion) of 10-year SPBs at a coupon rate of 3.5%, the provincial finance department said.
Some small and midsize banks, especially rural credit cooperatives, have suffered a surge of bad debt over the past few years after a rapid expansion in credit left a large amount of nonperforming loans on their books as economic growth slowed. The Covid-19 pandemic exacerbated the situation as many businesses and individuals were unable to repay debts on schedule.
In response, the State Council, China’s cabinet, in July 2020 authorized local government units to use funds from last year’s quota of RMB 3.75 trillion of SPBs to shore up bank balance sheets as part of measures to expand credit to micro, small and medium-sized businesses.