Coronavirus: China calls on banks to give up US$212 billion in profits to finance cheap business lending

Name: Coronavirus backlash further fraying China’s ties to global economy
Uploaded: 2020-06-18T08:13:27.000Z
Duration: 5 min 2 s
Description: Coronavirus backlash further fraying China’s ties to global economy

In latest stimulus step, China’s State Council calls on banks to give up equivalent of 75 per cent of their 2019 profits to help stead the economy

China’s central bank will direct financial institutions to lower lending rates, add fresh funds at low rates for borrowers and slash service fees

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China has urged banks to surrender 1.5 trillion yuan (US$212 billion) in profits this year to help predominantly small businesses weather the impact of the coronavirus. Photo: AFP

Daniel Ren,Orange WangandYujing Liu

Published: 4:13pm, 18 Jun 2020Updated: 10:14pm, 18 Jun 2020

China’s government is reaching beyond its monetary policy tool box to free up capital and direct funds towards the nation’s cash-starved businesses to help the economy claw its way out of its worst slump in four decades.

The government has called on banks to sacrifice as much as 1.5 trillion yuan (US$212 billion) in profits this year to finance cheap loans, cut fees, defer loan repayments and grant more unsecured loans to help small businesses survive the downturn caused by the coronavirus lockdown.

Separately, the State Council, China’s cabinet, signalled late on Wednesday that it would cut the amount of reserves banks are required to hold at the central bank, freeing up more money to spur lending.

“We are guiding the market to lower lending rates through interest-rate reform,” Yi Gang, the governor of the People’s Bank of China (PBOC), told the Lujiazui Forum on Thursday, confirming the move was a de facto cut in interest rates. “Financial institutions are urged to sacrifice profits to benefit corporate borrowers, helping reduce their borrowing costs.”

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Coronavirus backlash further fraying China’s ties to global economy

Yi added that the PBOC would achieve the goal by directing financial institutions to offer lower lending rates, adding fresh funds at low rates that can be accessed by borrowers directly, and slashing service fees.