China's efforts to resolve financial risks slowed by coronavirus

Beijing

CHINA'S efforts to resolve risks among high-risk financial institutions have been hampered by slower economic conditions caused by the outbreak of the new coronavirus, the head of a provincial branch of the central bank told Reuters.

The government dropped its annual growth target in its 2020 work report delivered at the opening of the National People's Congress on Friday, with Premier Li Keqiang warning that financial risks are mounting in the world's second-biggest economy.

"The epidemic has affected the work done in the past on financial risk prevention," said Xu Nuojin, head of the People's Bank of China's Zhengzhou branch in central Henan province, on Saturday. "The outstanding risks could be intensified, and the new risks are taking shape."

Regulators have cracked down on high-risk financial institutions to fend off systematic risks, most prominently with the shock government takeover of the then little-known Baoshang Bank last year. Then the epidemic hit, causing China's economy to contract for the first time in decades.

The PBOC said on Saturday that regulators were extending their temporary custodianship of Baoshang, based in the northern Chinese region of Inner Mongolia, by six months due to the epidemic.

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"It's impossible to require some of the financial institutions, already weak in health, to operate normally during the shock of epidemic," Mr Xu said. "We have to roll out more tolerant measures and extend the grace period appropriately when tackling risks."

In 2019, regulators also led state rescues of two medium-sized banks - Bank of Jinzhou and Hengfeng Bank - hit by liquidity strains due to depositor worries about asset quality and the state of local economies.

Mr Xu said local regulators and governments had participated in recent efforts to resolve risks at Evergrande Group-backed Shengjing Bank, based in north-eastern Liaoning province, and Pingdingshan Bank, a small lender in Henan.

"Financial risks will be resolved and prevented as the epidemic is brought under control," Mr Xu said.

"This theme will not change."

On Sunday, China's central bank said in an article that Chinese lenders could post flat or even falling profits in 2020 despite earnings growth in the first quarter, as the coronavirus outbreak brings difficulties to the economy.

For the first quarter of 2020, China's commercial banks realised net profits of 600.1 billion yuan (S$120 billion), up 5 per cent year-on-year, mainly due to the expansion of banks' assets and lower management costs, according to an article by the research bureau of the PBOC.

The possibility could not be ruled out that banks could log zero or even negative profit growth within 2020, due to mounting bad loans and a fast draining of cash buffers, as the difficulties in the real economy spills over into the financial area, the PBOC warned in the article.

China's banks need to further support the real economy which faces various challenges due to the coronavirus outbreak, in particular small and micro enterprises, as there is some room for banks to surrender part of their healthy profits, the article said.

In an effort to cushion the economy, small and midsize companies can delay paying loans and interest by a further nine months, through March 2021, and lending to SMEs by big commercial banks should grow more than 40 per cent, Mr Li said on Friday.

In March, China's largest state banks said the impact of restrictions on movement imposed to slow the spread of the coronavirus could pull down asset quality as borrowers struggle to repay loans. REUTERS