SCIO briefing on operations and performance of the banking and insurance sectors in the first quarter of 2020

The State Council Information Office held a press conference on April 22 in Beijing to brief the media about the operations and performance of the banking and insurance sectors in the first quarter of 2020. April 23, 2020

China National Radio (CNR):

Faced with the impact of the COVID-19 pandemic, will the banks' non-performing loan ratio continue to rise, or even rise sharply, in the second quarter and bring great risks? And how will the regulatory authorities respond to this? Thank you.

Huang Hong:

Thanks for your question. Mr. Xiao will answer it.

Xiao Yuanqi:

Thanks for your question. We are all concerned about the non-performing loan ratio. The data shows that the non-performing loan ratio rose in the first quarter, and the current ratio is 2.04%, 0.06 percentage points up from the beginning of this year. The ratio concerning small and micro enterprises and industries like catering and hospitality that have been severely affected by the pandemic has increased relatively fast, which is within our estimation range. We have paid close attention and conducted an analysis of the non-performing loan ratio in the second quarter, and we will continue to do so for some time to come. We think that the ratio will further increase in the near future but won't climb high. We are resuming work and production in an orderly manner, and we have implemented a series of hedge policies to mitigate risks. The policies and measures have begun to show their effectiveness.

In terms of supervision, we have recently been conducting analysis and close monitoring. First, we have conducted stress tests, including differentiated tests set by different steps and circumstances, as well as comprehensive tests. Second, we have intensified efforts to dispose of non-performing loans. In the first quarter, we disposed of non-performing loans worth more than 450 billion yuan ($63.53 billion), increasing by 81 billion yuan ($11.43 billion) over the same period of last year. Additionally, we have expanded our channels and methods of disposal, which not only reduced the non-performing loans of the banks but also provided them with conditions to create more new loans to support enterprises. Third, we have asked all banks to make more efforts to support enterprises, especially medium, small and micro enterprises, in their resumption of work and production. The support given to the enterprises is a measure of the banks to prevent risks because as long as the enterprises can develop well, the non-performing loans of the banks will decrease. The difficulties encountered by the enterprises are temporary, and they are caused by external factors. Before the COVID-19 outbreak, the fundamentals of most enterprises were good. However, since the pandemic, lots of enterprises have had to face temporary difficulties in operation and cash flow, which have made them fail to repay their loans on time. In addition to hedge measures, the banks should also strengthen their capabilities in risk management and segmentation of customers to separate enterprises affected by the pandemic from those that previously had operating problems. Most of the enterprises in difficulty belong to the former group.

We have sufficient provisions and capital to fend off risks. At present, we have provisions worth more than 6 trillion yuan ($840 billion), which give us strength in facing the challenge. In short, there will be a small increase in the non-performing loans of the banks. However, thanks to all these measures, we believe that risks can be controlled completely, and our ability to fend off risks is sufficient. Thank you.

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