On June 1, 2020, in order to thoroughly implement the decisions and arrangements made by the Central Committee of the Communist Party of China (CPC) and the State Council on coordinating the pandemic containment and economic and social development, follow the requirements laid out in the Government Work Report with respect to enhancing financial support to stabilize businesses, and strengthen “direct accessibility” of financial policies to enterprises, upon the approval of the State Council, the People’s Bank of China (PBC), jointly with the China Banking and Insurance Regulatory Commission (CBIRC), the Ministry of Finance (MOF), the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT), issued the Notice on Extending the Policy of Phased Deferment of Loan Principal and Interest Repayments for Micro-, Small and Medium-sized Enterprises (hereinafter referred to as the Notice on Deferring Loan Principal and Interest Repayments) and the Notice on Stepping up Credit Support for Micro and Small Businesses (hereinafter referred to as the Notice on Credit Support).
The Notice on Defering Loan Principal and Interest Repayments requires that, for principals of inclusive loans issued to micro and small businesses (MSBs) due before end-2020 and for accrued interest of inclusive MSB loans existing before end-2020, banking financial institutions shall grant time-limited deferment of loan principal and interest repayments to enterprises upon their applications, extending the repayment date to as late as March 31, 2021, and waiving any penalty interest. For other loans issued to micro-, small and medium-sized enterprises (MSMEs) due before end-2020 and loans to enterprises facing particular difficulties, such as large-sized enterprises (foreign trade enterprises) along the international supply chain, the enterprises and banking financial institutions may discretionarily negotiate on the deferment of loan principal and interest repayments.
It is stressed in the Notice on Deferring Loan Principal and Interest Repayments that banking financial institutions shall make their best efforts to defer repayments of inclusive MSB loans when they meet the criteria. Meanwhile, in order to fully motivate locally incorporated banks, the PBC will work with the MOF to grant these banks with 1 percent of the inclusive MSB loan principals, of which the repayments are deferred by the banks, as incentives. When appraising the operating performance of state-holding banking financial institutions and joint-stock banking financial institutions with state-owned shares in 2020, the agencies in charge of managing state-owned financial capital shall take into full account the impact of the policy of phased deferment of loan principal and interest repayments, and deliver reasonable adjustments and assessments. Banking financial institutions shall uphold the approach of substantive risk assessment and refrain from downgrading enterprises’ loan risk categories because of the pandemic, and thus affecting the enterprises’ credit records.
The Notice on Credit Support specifies that, starting from June 1, 2020, the PBC will apply monetary policy tools in an innovative way by using RMB400 billion special quotas of central bank lending to purchase 40 percent of new inclusive MSB credit loans issued by qualified locally incorporated banks between March 1, 2020 and December 31, 2020, in a bid to encourage banks to expand credit issuance to MSBs and support more MSBs to receive unsecured credit support. The Notice on Credit Support also stresses that banking financial institutions shall focus particularly on examining the first source of repayment, reduce reliance on collateral, and diversify the system of credit loan products, so as to ensure a significant rise in the proportion of inclusive MSB credit loans in 2020. Locally incorporated banking financial institutions obtaining the support shall establish growth targets for inclusive MSB credit loans, ensure MSBs’ benefits from policy dividends and lower the interest rates of credit loans.
The implementation of the aforementioned policies will facilitate banking financial institutions to increase MSB credit loans and roll over loans without principal repayment, stabilize the financing cash flow of MSBs, ramp up the accessibility of MSB loans and further bring down the overall financing costs for MSBs.
