Beijing has a funding relief plan for distressed private firms but will banks follow?
- New government proposals expected to have limited impact on cash flowing to sector, industry insiders say
- Loan officers ‘unlikely to risk’ lending to most private firms even with personal exemptions
China’s top financial regulators have been working around the clock to try to ease funding difficulties for private companies, as Beijing turns to the sector to help stabilise growth and arrest a sharp fall in the stock market amid the trade war with the United States.
The Financial Stability and Development Committee – the country’s de facto highest decision-making body for economic and financial policies and headed by Vice-Premier Liu He – has given specific orders on what Chinese banks, mostly owned by the central or local governments, should do to boost credit support to private businesses, which have struggled to gain access to credit.
The incentives include raising the weighting of lending to the private sector in the performance reviews of banks and their executives, according to a statement posted on the central government’s official website on Sunday. It suggested that banks that boosted lending to private borrowers would be rewarded by regulators and their executives could be better compensated.
More important, the committee decided that as long as bank officials did due diligence, they would be exempted from punishment even if the loans to private borrowers turned sour. The decision reversed the existing practise of state bank officials coming under scrutiny, or even a disciplinary investigation, for bad loans to the private sector.
If implemented, these new orders, together with a clear requirement that banks should not “blindly” withdraw or reduce loans to private borrowers due to their “temporary business difficulties”, will translate into a sweeping change in the business of state banks, which favour state-owned enterprises over private ones in lending.
