China Exempts Foreign Banks From Massive Loan Relief Push

(Bloomberg) -- Small businesses in China are being told by their foreign banks that loan extensions mandated by the government no longer apply to them as the nation dials back one of the relief measures unleashed after the coronavirus lockdown.

In a notice given to foreign lenders operating in the jurisdiction of Shanghai, China's banking regulator said those banks won't need to extend loan relief to small and medium sized firms, according to people familiar with the decision who asked not to be named discussing a private decision. The measure applies throughout the country, one of the people said.

The local branch of the China Banking and Insurance Regulatory Commission couldn't immediately comment.

The move clarifies that foreign lenders aren't part of a May extension to the relief program as the coronavirus outbreak eases and the world's second-largest economy gets back on its feet. The program gives reprieve on trillions of yuan of troubles loans through March next year by mandating that domestic lenders extend principle and interest payments. Business lending in China is dominated by local banks, ensuring the relief will continue for most.

“As the economy is recovering regulators are more flexible,” said Chen Hao, a Shanghai-based senior analyst at CIB Research. “To start with foreign banks is a good idea given the scale of their loans are rather small.”

Policy makers have been juggling between supporting the economy and managing risks from rolling over bad debt. At a meeting on Monday, the People's Bank of China said it will keep up support for smaller businesses though relief policies should not come with hard rules. It also pledged to allow commercial banks to manage their own operations.

China's $41 trillion banking system is at the forefront of propping up companies hurt by the virus outbreak. Relief measures, and changes to how bad loans are classified, have so far limited a jump in bad debt. S&P Global estimated in May that the nation could face a $8 trillion jump in non-performing loans this year, doubling to almost 10% of the total.

Foreign lenders will also be made exempt from sending their loan extension data to regulators as of July, the people said.

In May, Premier Li Keqiang said in his annual policy address that small and medium-sized businesses can delay their interest and principal payments for nine months to the end of March 2021, extending an original deadline of June 30. The authorities also announced that big commercial banks will be required to boost loans to smaller firms by more than 40% this year, a more aggressive target than last year's 30%.

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With assistance from Bloomberg