China’s banking regulator has requested financial institutions not to “casually” cut off or cease lending to firms facing business difficulties, the National Business Daily reported Thursday citing anonymous sources.
The newspaper said lenders had received a notice from the China Banking Regulatory Commission (CBRC) encouraging them to help troubled businesses resolve their difficulties by extending maturities on loans or relending.
The regulator, when contacted by Reuters, had no immediate comment on the report.
Chinese banks are struggling with rising non-performing loans, exceeding two trillion yuan ($301 billion) and accounting for 2.15 percent of total bank lending as of the end of May, according to recent comments by a CBRC official.
Accelerating defaults in the bond market and strong rhetoric by other policymakers, including the central bank, on curbing lending to “zombie” enterprises, has also made banks wary of lending to certain sectors and to certain regions, especially legacy coal and steel producing areas.
A recent Reuters analysis of central bank data showed that coal and steel dependent regions, especially in China’s northeast rust belt, were increasingly dependent on high-interest “shadow banking” loans as traditional lenders withdrew.
Coal and steel country have also been at the heart of major bond defaults and efforts to address the problems they pose. On Wednesday the coal province Shanxi announced that it would be the first to allow the issuance of credit default swaps (CDS), the official news agency Xinhua reported on Wednesday.
A CDS is a form of insurance for the buyer of a bond that money owed in the event of a credit default will be repaid by the seller of the CDS.
In June, Reuters reported that a Chinese financial committee governing issuance of some forms of bond debt had proposed updating the rules for hedging debt defaults, a step forward for the country to launch CDS and similar derivatives for the first time.