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China tells banks to 'significantly cut' lending rates for small businesses -sources

Reuters  |  BEIJING 

(Reuters) - China's has told banks to "significantly cut" lending rates for small firms in the third quarter in comparison with the first quarter, two people with direct knowledge of the matter told on Monday.

The move comes amid a Chinese deleveraging campaign to crack down on financial risks and economic uncertainty triggered by a trade war with the that economists have cautioned could slow China's economic growth.

The has already felt the pinch from the multi-year crackdown on riskier lending that has driven up corporate borrowing costs, prompting the central to pump out more cash by cutting reserve requirements for lenders.

In a non-public notice issued by the Banking and Insurance Regulatory Commission (CBIRC) in late June, the regulator also asked banks to increase real-time monitoring of lending rates, the two people with knowledge of it said.

The CBIRC didn't immediately respond to an emailed request seeking comment.

Beijing's deleveraging campaign, aside from gradually pushing up borrowing costs for the corporate sector, has restricted companies from tapping alternative, murkier funding sources such as

China's central does not disclose lending rates for small businesses. The weighted average lending rate for the non-financial corporate sector was 5.96 percent in March, according to the latest monetary policy report.

Private companies and small businesses, whose financing costs tend to be much higher than those for large state firms, have suffered the most in the strained liquidity conditions.

Recent official surveys also show that tight funding has hit smaller manufacturers.

To ease refinancing pressure on small businesses - a pivotal part of the world's second largest - China's central recently cut banks' reserve requirement ratios (RRRs) by 50 basis points (bps), releasing $108 billion in liquidity.

During high-level government meetings, has repeatedly urged that banks effectively lower financing costs, especially for small businesses and the agricultural sector.

In the June notice, Chinese banks were also told to keep asset quality and overall costs of their small business lending at a reasonable level, said the sources who declined to be named as they were not authorised to speak to the media.

The CBIRC has asked its branches nationwide to strengthen regulatory review to examine the progress made by banks, the sources said.

(Reporting by team; Editing by and Richard Borsuk)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, July 09 2018. 15:19 IST
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