Chinese banks are continuing to defer payments for the principal and interest on small business loans as the world continues to grapple with the impacts of COVID-19 for a second year.
In 2020 and the first five months of 2021 banking sector financial institutions in China provided deferrals on 10.9 trillion yuan (approx. USD$1.68 trillion) in loan principal and interest repayments at the behest of Chinese regulators, according to data from the People’s Bank of China (PBOC).
While China appeared to have contained COVID-19 by the end of 2020, PBOC has flagged the continuation of financial support policies well into 2021. At the start of April PBOC issued a notice extending micro and small-enterprise (MSE) loan deferral policies until 31 December 2021, calling for enterprises and banks to “independently negotiate and confirm” related arrangements.
ICBC, China and the world’s largest lender in terms of assets, said that since the start of the year it has provided deferrals worth over 100 billion to nearly 80,000 MSE clients, as well as deferrals worth more than 480 million yuan to around 30,000 micro-and-small enterprise clients involving 20 billion yuan in lending.
China first launched its loan deferral program at the very start of the COVID-19 pandemic, with PBOC issuing the “Notice Concerning the Implementation of Provisional Deferrals on Loan and Interest Payments for Micro, Small and Medium-sized Enterprises” (关于对中小微企业贷款实施临时性延期还本付息的通知) on 1 March 2020.
Chinese financial authorities have also taken measures to drive financial inclusion to small businesses in the wake of the pandemic.
PBOC data indicates that as of the end of June the financial inclusion MSE loan balance stood at 17.7 trillion yuan, for YoY growth of 31%, providing support to 38.3 million MSE’s, for YoY growth of 29.2%.
In 2020 and up until May 2020, China’s banking sector financial institutions issued a total of 6.3 trillion yuan in financial inclusion MSE loans.
In the month of May the average interest rate for new MSE loans of under 10 million yuan was 4.93%, for a decline of 0.3 percentage points compared to the same period last year.