Large Chinese banks are tightening the standards of lending to small
Some large Chinese banks have tightened asset quality audits and interbank lending standards for smaller credit institutions in an attempt to curb credit risk against the background of the developing real estate crisis, Reuters writes, citing sources.
According to the agency's interlocutors, at least the two largest banks in the country have been conducting inspections of small creditors in the last couple of months to find out their quality of assets and identify a high risk of defaults. The source noted that one of the banks has completely stopped buying bonds issued by small credit institutions with assets of less than $40 billion.
The two state banks also decided to reduce the limits of interbank lending and set shorter terms for such operations for smaller banks, which are considered high-risk. We are talking about banks from Northeast China, Henan Province and Nei Meng. China's medium and small banks account for about half of the trading volume in the interbank lending market.
These steps come against the backdrop of growing concerns about the "health" of small banks in China due to the worsening real estate crisis. Such a cautious approach can aggravate the situation of small banks, because they have fewer and fewer ways of lending: large banks use deposits and customer deposits as a source of financing for issuing loans, and small players borrow from competitors to collect these funds.
Since China struggled with the slowdown in economic growth and the impact of this phenomenon on the country's financial system, local authorities took measures to support the banking industry. It is primarily about small banks to maintain financial stability in the country. As part of support measures, local authorities sold record volumes of special bonds, the raised funds from which were poured into the capital of troubled small regional banks.
