China to start issuing $59.6b in loans to firms fighting coronavirus

The People's Bank of China has called on financial institutions to avoid "blindly" cutting off loans from industries, as well as small and micro enterprises.
The People's Bank of China has called on financial institutions to avoid "blindly" cutting off loans from industries, as well as small and micro enterprises.PHOTO: REUTERS

BEIJING (AFP, BLOOMBERG) - China's central bank will start issuing loans totaling 300 billion yuan (S$59.6 billion) via its re-lending programme as part of measures to help businesses involved in fighting the coronavirus epidemic which has infected tens of thousands.

The People's Bank of China (PBOC) will provide the first batch of special re-lending funds on Monday (Feb 10) and will offer the facility weekly to banks later this month.

Under the funding facility, nine major national banks and some local banks in ten provinces and cities are qualified for the special funding, according to PBOC Deputy Governor Liu Guoqiang.

These 10 areas include Hubei province - the epicentre of the virus outbreak - as well as Zhejiang, Guangdong, the capital city of Beijing and financial hub Shanghai.

The financial boost is aimed at helping companies at both national and local level, Liu said.

The central bank had earlier said it would ensure funds are directed to production and business activities related to combating the coronavirus. Financial institutions must offer the loans at up to 100 basis points below the one-year Loan Prime Rate, it said.

They "need to review and issue loans quickly", and release funds within two days, Liu stressed in a speech posted on the bank's website on Sunday.

The deputy governor added that the central bank will track the use of the funds and any found to flout the rules will be penalised.

The move comes as the virus outbreak continues to hammer retail spending and industrial production, with analysts expecting the outbreak to shave up to two percentage points from China's first-quarter growth.

 
 
 

"The virus' high infectiousness thus far (relative to Sars) has forced the implementation of far-reaching containment measures," economists at Barclays led by Christian Keller wrote in a recent note. "Even if these prove successful at containing its spread, they still imply a negative impact on activity, which will be highly concentrated but not limited to China's first quarter activity."

The growth shock has prompted the PBOC to prioritize growth over debt control by pledging a series of emergency measures to inject cash into the financial system and wider economy.

The central bank has called on financial institutions to avoid "blindly" cutting off loans from industries, as well as small and micro enterprises.

It also announced that it would pump 1.2 trillion yuan into financial markets as it ramped up support for the virus fight.

The depth of the downturn will depend on how quickly the virus is contained and by extension how quickly restrictions on travel and factory production will be lifted.

"There are still uncertainties as to how quickly the coronavirus situation will be brought under control and when production and goods transportation services will be ramped up to normal levels," Chetan Ahya, chief economist at Morgan Stanley, wrote in a note.