China’s regulators to support smaller banks to limit financial contagion from burgeoning bad debt, PwC says
- China’s regulators to step up support of smaller banks most vulnerable to rising NPLs, PwC says
- State-led seizures, liquidity injections to limit financial contagion
China’s financial regulators need to cut the country’s smaller city and rural commercial banks more slack, as they are most vulnerable to higher-risk borrowers amid a slumping economy and depressed demand caused by the coronavirus outbreak, according to consultancy PwC.
Regulators’ moves to bolster the lenders should help keep the banking sector’s non-performing loan (NPL) level in check, according to Richard Zhu, north China financial services leader at PwC based in Beijing.
Measures that the regulators might take range from a government-led bailout, liquidity support to debt restructuring programmes, he said.
“Regulators would likely step up efforts to prevent NPLs among smaller banks from spiralling into a systemic risk for the banking system,” said Zhu.
The NPL ratio is closely related to banks’ ability to resolve their pile of sour loans, either through sales, restructuring or write-offs. The larger the amount of delinquent loans that banks are able to resolve, the lower the NPL ratio, analysts have said.