China reduces borrowing costs as expected

SHANGHAI/TOKYO: China cut the benchmark lending rate yesterday, as widely expected, as the authorities move to lower financing costs for businesses and support an economy jolted by a severe coronavirus outbreak.

The epidemic has upended global supply chains and caused widespread disruption to businesses and factory activity in China, prompting authorities to deliver a steady stream of policy measures over recent weeks to cushion the blow to growth.

The one-year loan prime rate (LPR), the new benchmark lending gauge introduced in August, was lowered by 10 basis points to 4.05% from 4.15% at the previous monthly fixing.

The five-year LPR was lowered by five basis points to 4.75% from 4.80%.

All 51 respondents in a Reuters snap survey had expected a reduction in the LPR, with 38 respondents, or about 75% of participants, tipping a 10 basis points cut to both tenors.

The LPR cut followed a similar move in the central bank’s mediumterm lending rate on Monday. Investors are betting the authorities will roll out more monetary easing and fiscal stimulus in the near term to help smaller businesses that are struggling to tide over the crisis.

China’s yuan weakened to a more than two-month low against the dollar after the LPR cut, mainly pressured by further easing expectations.

Meanwhile, Chinese banks extended a record 3.34 trillion yuan (1.99 trillion) in new yuan loans in January, up from December and exceeding analyst expectations.

Analysts polled by Reuters had predicted new yuan loans would rise to 3.00 trillion yuan in January, up from 1.14 trillion yuan in the previous month and compared with the prior record 3.23 trillion yuan a year earlier.

Outstanding yuan loans grew 12.1% from a year earlier compared with 12.3% growth in December. Analysts had expected 12.1% growth.

In another development, credit agency S&P Global estimated yesterday that China’s banking sector may face a surge of up to 7.7 trillion yuan of non-performing loans (NPLs) in 2020 if the coronavirus outbreak doesn’t peak until April.

“As the coronavirus outbreak disrupts Chinese production, some companies and individuals will have difficulty with debt repayments,“S&P Global warned in a report.

“We expect China will loosen NPL recognition standards to help affected businesses and communities, and that it may take years to digest the forbearance,” it added. – Reuters