China has disposed 2.6 trillion yuan ($389.89 billion) worth of non-performing loans at small and midsize rural commercial banks since 2018. The amount exceeded total NPLs that were dealt with at these types of banks in the last 10 years, said an official of the China Banking and Insurance Regulatory Commission.
The country stepped up efforts for NPL disposal and encouraged small and midsize rural commercial banks to introduce qualified shareholders and dissolve their risks through mergers and restructuring. The CBIRC has handled financial risks at 627 high-risk small and midsize rural commercial banks since 2018.
The overall risks of Chinese rural commercial banks remain controllable and have shown a general contraction trend. In some provinces and regions, however, small and midsize rural commercial banks are still facing prominent risks partly because it is hard for the regional economy to make a transition. Local governments in these regions have found it difficult to provide funds for risk mitigation due to tight budgets, the official said on Friday.
In addition, it is estimated that some of the deferred repayments of principal and interests on loans to micro, small and medium-sized enterprises that are in temporary difficulties during the COVID-19 pandemic will turn into bad loans and thus further raise the pressure on rural commercial banks.
Small and midsize rural commercial banks in China have deferred loan principal payments totaling 3.4 trillion yuan since 2020 for micro and small enterprises (MSEs) affected by COVID-19, alleviating temporary operational difficulties of the businesses.
The CBIRC will promote deep-level reforms of small and midsize rural commercial banks, step up risk mitigation and continuously enhance their capabilities to serve the real economy.
The regulator urged these banks to strictly restrict the behavior of their large shareholders, strengthen the management of related party transactions and prevent large shareholders from intervening in internal banking operations and management. It also encouraged quality banks, insurers and other eligible institutions to participate in mergers, acquisitions and restructurings of small and midsize rural commercial banks, the official said.
Moreover, these type of banks should strictly control large-sum credit granting and descend their focus of financial services to smaller clients in the local market, the official said.
At the end of last year, the outstanding balance of loans provided by small and midsize rural commercial banks to MSEs was 12.9 trillion yuan, accounting for 27 percent of small business loans offered by the Chinese banking sector.