This undated photo shows an employee counting money at a bank in Huaibei, Anhui province. (XIE ZHENGYI / FOR CHINA DAILY)

The recent increase in cost of financial risk is “both normal and necessary”, considering the massive impact of COVID-­19 on the economy, and the financial sector is expected to make a greater contribution to further boost economic recovery, according to a regulatory official. 

By the end of June, China’s outstanding balance of nonper­forming loans to small business­es with a total credit line of up to 10 million yuan (US$1.45 million) per borrower, namely, the balance of nonperforming “inclu­sive loans” — or loans to such small businesses — reached 0.4 trillion yuan, up 9.25 percent from the beginning of this year. The nonperforming inclusive loan ratio was 2.99 percent, 0.88 percentage point higher than the NPL ratio of various types of loans. 

Based on the actual situation this year, the banking sector plans to dispose of about 3.4 tril­lion yuan of nonperforming assets for the whole year, up by 1.1 trillion yuan from last year. As a result, China will further strengthen the risk resistance ability of its banking sector. 

China Banking and Insur­ance Regulatory Commission's spokesman

“The current nonperforming inclusive loan ratio is close to the level of tolerance for NPLs we set previously,” said a spokesman for the China Banking and Insur­ance Regulatory Commission. 

“However, considering that the novel coronavirus outbreak is a disaster of the century, the finan­cial sector still needs to contrib­ute more to support complete economic recovery. In addition, ensuring security in enterprises and stabilizing employment will help to secure banks and stabilize finance. Therefore, the recent increase in cost of financial risk is both normal and necessary.” 

Inclusive finance has made great progress in China in terms of quantity and quality. 

“Our inclusive finance is gradually realizing precision irrigation (reaching more precisely to tar­geted customers and businesses) through reform and opening-­up, technology empowerment and strengthened management. The credit risk is generally controlla­ble,” the spokesman said. 

Financial institutions in the banking sector are stepping up efforts to dispose of nonperforming loans and increase provi­sions for possible loan losses. 

“Based on the actual situation this year, the banking sector plans to dispose of about 3.4 tril­lion yuan of nonperforming assets for the whole year, up by 1.1 trillion yuan from last year. As a result, China will further strengthen the risk resistance ability of its banking sector,” the spokesman said. 

READ MORE: Banks urged to amplify loan loss provisions

More pressure expected 

Zeng Gang, deputy director­ general of the National Institution for Finance & Development, said China may come under the pressure of rising financial risks in the next two quarters, espe­cially in the first quarter of next year, as risk may further arise from delayed repayments on inclusive loan principal and interest. But it will depend on the progress of pandemic control and the economic recovery. 

“Further strengthening poli­cies to support small businesses is a crucial part of risk control in the future,” Zeng said. 

“Apart from responding to these policies, banks should also step up technology innovation to reduce costs effectively with the help of the internet, big data, and combined online and offline oper­ations. This will also help banks identify the clients that are wor­thy of lending to through more precise identification and evalua­tion of risks based on big data.” 

READ MORE: China's banks looking to adjust business

At the same time, the China Banking and Insurance Regula­tory Commission will fulfill its commitment to opening-­up, continue to steadily raise the lev­ el of opening­-up of the banking and insurance sectors while ensuring financial security, keep improving regulatory measures and enhance the capacity of financial management and risk control by opening-­up. 

The regulator has given approval to foreign banks and insurers to establish nearly 100 institutions of various types in China since 2018. 

jiangxueqing@chinadaily.com.cn