Chinese banks cut lending due to the slowing economy

Chinese banks hurried to meet the annual lending quotas by purchasing low-risk financial instruments instead of issuing loans.

Bankers and analysts say that this surge reflects financial organizations’ caution about China’s slowing economy. The peak in demand for bankers’ acceptances lowered the yield on the instruments to close to zero percent in December. A record low of 0.008% appeared on December 23. That was way lower than Chinese banks’ average 2.6% of capital over the same period. They preferred to lose money on low-yielding bankers’ acceptances instead of risking more substantial losses by issuing their loans at higher interest rates. President Xi Jinping’s administration recommends banks lend more, especially to small and medium-sized businesses in government-favored sectors. Those sectors include agriculture and new energy vehicles. However, banks are hesitant to follow this advice because they believe China’s struggling economy decreased the number of qualified borrowers.

The safest way to back the government’s policy goals for Loan officers was buying up bankers’ acceptances to meet their lending quotas.

Comments on the current slowing economy

An executive at Zhongyuan Bank said they could not say no to supporting the broader economy. He explained that it is a political task. He added that their losses from buying bankers’ assurances are less than lending to random businesses.

Businesses use bankers’ acceptances as a way of payment. Then the holder can redeem it with the issuing bank. Loan officers said Xi’s regulatory crackdown affected many of their finest borrowers in private education and real estate sectors. He added that there was no sign that conditions might improve soon.

A loan officer at Zheshang Bank in Hangzhou said that the authorities want them to support the economy while maintaining bad debts under control. He added that it seems complicated to achieve in the existing business environment.