Ratings agency Standard & Poor's Global Credit Ratings indicated Thursday that China's banking sector may face an increase in non-performing loans of up to 7.7 trillion yuan ($ 1.1 trillion) this year unless the outbreak of the Corona virus begins to recede before next April.
In a report released today, Standard & Poor's warned that "while the outbreak of the Corona virus is disrupting production in China, some companies and individuals will find it difficult to repay the debt." "We expect China to ease the criteria for defining bad loans to help affected companies and societies," the agency added.
China is struggling to contain the epidemic that has killed nearly 2,100 people, infected more than 75,000, and has resulted in severe travel and transportation restrictions that have led to the shutdown of many companies and damaged supply and demand for goods and services.
In the context of efforts to mitigate the impact of this, the financial services regulators are urging banks to reduce interest rates and extend loan deadlines for specific companies that have been affected by the outbreak.
Local authorities are putting up a list of company names to help the People's Bank of China (the central bank) inject cheap loans worth 300 billion yuan to companies affected by the virus across the country.
The China Banking and Insurance Regulatory Commission said in January that Beijing had disposed of two trillion yuan ($ 289.11 billion) of bad loans over the past year, amid a nationwide campaign to restrict high-risk lending.
The committee seeks to tackle China's growing financial risks, in light of the scores of small lenders under pressure as a result of the economic slowdown.
China cut its key lending rate on Thursday, as was widely expected, at a time when authorities are moving to cut costs for financing commercial activities and support an economy rocked by the massive outbreak of the Corona virus.
And China reduced the main one-year lending rate, which is the new record interest rate for loans that started in last August, by ten basis points to 4.05% compared to 4.15% in the previous monthly adjustment.
It was also decided to reduce the five-year interest rate by five basis points to 4.75%, compared to 4.80% previously.
The yuan fell to its lowest level in more than two months against the dollar after the rate cut, driven by pressure from expectations of more monetary easing.