The State Council made two new moves to urge banks to support small businesses and help small businesses.

On April 21st, the executive meeting of the State Council decided to increase the assessment weight of inclusive finance and reduce the provision coverage ratio of small and medium-sized banks, so as to promote the strengthening of financial services for small and micro enterprises.

In order to promote financial institutions to better serve small and micro enterprises, the meeting decided to raise the weight of inclusive finance in the comprehensive performance appraisal indicators of branches and branches of banking financial institutions to more than 10%, and encourage the increase of small and micro credit. At the same time, the regulatory requirements for the provision coverage ratio of small and medium-sized banks will be lowered by 20 percentage points, releasing more credit resources and improving the ability to serve small and micro enterprises.

Prior to this, the regulation required the provision coverage ratio of the banking industry to be 120%-150%. This downward adjustment means that the provision coverage ratio of small and medium-sized banks can be as low as 100%.

"These two measures are concrete measures to implement the spirit of the Politburo meeting on April 17, and the main purpose is to urge banks to increase credit supply to small and medium-sized enterprises." Tang Jianwei, chief researcher of the Financial Research Center of Bank of Communications, said, "Improving the assessment weight will encourage the branches of commercial banks to do business in inclusive finance. Small and medium-sized banks are the main force supporting small and micro enterprises, and the reduction of provision coverage ratio will enhance the ability of small and medium-sized banks to serve small and micro enterprises. "

On April 17th, Politburo meeting of the Chinese Communist Party made a new statement on monetary policy: a prudent monetary policy should be more flexible and moderate, and the liquidity should be kept reasonable and sufficient by means of RRR reduction, interest rate reduction and refinancing, so as to guide the downward interest rate in the loan market and use the funds to support the real economy, especially small and medium-sized enterprises.

The provision coverage ratio of small and medium-sized banks can be as low as 100%

The executive meeting of the State Council pointed out that the regulatory requirements for provision coverage ratio of small and medium-sized banks should be lowered by 20 percentage points in stages, so as to release more credit resources and improve the ability to serve small and micro enterprises.

Provision coverage ratio is an important indicator to examine whether the bank’s financial stability and risk are controllable. This ratio is the ratio of loan loss reserve to non-performing loans, in which loan loss reserve is the sum of general reserve, special reserve and special reserve.

In February 2018, the then China Banking Regulatory Commission issued the Notice on Adjusting the Supervision Requirements for Loan Loss Provision of Commercial Banks (Yin Jian Fa (2018) No.7 document), which clarified that the supervision requirements for provision coverage ratio were adjusted from 150% to 120%-150%, and the supervision requirements for loan provision ratio were adjusted from 2.5% to 1.5%-2.5%, and in accordance with the principle of homogeneity, similarity and one policy.

According to China Banking and Insurance Regulatory Commission data, as of the end of the fourth quarter of 2019, the balance of loan loss reserve of commercial banks was 4.5 trillion yuan, an increase of 49.3 billion yuan from the end of last quarter; The provision coverage ratio was 186.08%, down 1.56 percentage points from the end of last quarter.

By type, by the end of 2019, the provision coverage ratios of large banks, stock banks, city commercial banks and rural commercial banks (the latter two are small and medium-sized banks) were 234.33%, 192.97%, 153.95% and 128.16% respectively. On the whole, big banks are in good condition, stock banks are acceptable, small and medium-sized banks are relatively poor, and rural commercial banks are only 8.16 percentage points away from the minimum warning line.

"If non-performing loans reflect the truth, the provision coverage ratio of 100% can meet the needs of resolving non-performing. Now the provision coverage ratio exceeds 100%, which means that commercial banks have excessive provisions, and the excess part also constitutes a space for countercyclical adjustment. " Ceng Gang, deputy director of the National Finance and Development Laboratory, said.

The regulatory requirements for the provision coverage ratio of small and medium-sized banks are lowered by 20 percentage points in stages, which means that the provision coverage ratio of small and medium-sized banks can be as low as 100%. Affected by the epidemic, the current non-performing loans of small and medium-sized banks are rising, and the provision coverage ratio may passively decline, which may further break through the regulatory red line of 120%-150%. At this time, lowering the provision coverage ratio can avoid this problem.

"Lowering the provision coverage ratio will also help ease the pressure of bank profit growth." Dong Ximiao, chief researcher of Xinwang Bank, said, "The phased reduction of the regulatory requirements for provision coverage ratio of small and medium-sized banks by 20 percentage points is a further embodiment of the countercyclical dynamic adjustment mechanism and differentiated management mechanism."

Specifically, in the economic upswing cycle, the provision coverage ratio can be higher, and more provisions can be made, so that banks have more sufficient risk absorption capacity and can play a greater role in the economic downturn cycle; In the economic downturn cycle, appropriately lowering the provision coverage ratio will help reduce the pressure on bank provision, release more credit resources and better serve the real economy.

Wen Bin, chief researcher of China Minsheng Bank, said that at present, the overall NPL ratio of the banking industry is low and the risks are controllable. Reducing the provision coverage ratio of small and medium-sized banks at this stage will help them to further focus on their future development orientation and serve agriculture, rural areas and farmers, private enterprises and small and micro enterprises. In addition, it is also beneficial for small and medium-sized banks to write off non-performing loans and improve their ability to cope with risks and serve the real economy.

Improve inclusive finance’s assessment weight

At the end of 2015, inclusive finance Development Plan (2016-2020) was issued. The goal put forward in the plan is to establish a service and security system in inclusive finance that is compatible with building a well-off society in an all-round way by 2020, especially to enable small and micro enterprises, farmers, urban low-income people, the poor, the disabled and the elderly to obtain financial services at reasonable prices, convenience and safety in time.

After more than four years of development, inclusive finance, China has made great progress. According to the data of China Banking and Insurance Regulatory Commission, by the end of 2019, the balance of inclusive small and micro enterprise loans of banking financial institutions was 11.7 trillion, with a year-on-year growth rate of 24.6%.

In terms of mechanism, the 2019 China inclusive finance Development Report jointly issued by the Central Bank and China Banking and Insurance Regulatory Commission shows that five large banks have set up inclusive finance business units in the head office and all 185 tier-one branches, and 10 joint-stock banks have set up inclusive finance business units, which provide differentiated incentives for services in key areas of inclusive finance in terms of separate credit plans, credit due diligence exemption, internal assessment incentives and internal capital concessions.

"2020 is the last year for China to implement the five-year plan for the development of inclusive finance. After the outbreak, small and medium-sized enterprises in China are facing great difficulties. It is more important and urgent to accelerate the development of inclusive finance and strengthen services for small and medium-sized enterprises. " Dong Ximiao said.

The executive meeting of the State Council requested that inclusive finance’s weight in the comprehensive performance appraisal indicators of branches and branches of banking financial institutions be raised to more than 10%, and that the provision of micro-credit be encouraged.

Wen Bin believes that different from the previous regulatory requirements, this the State Council executive meeting put forward quantitative requirements for the internal management of banks more directly and concretely: from the overall level of banks to the local level of branches, from the external assessment of banks to the internal assessment of banks.

Wen Bin introduced that at present, most banking businesses in the market are diversified, and the assessment indicators are diversified. The weight of small and micro businesses is less than 10%, or even less than 5%. "After the the State Council executive meeting, it is expected that the regulatory authorities will clarify the assessment rules for small and micro businesses of commercial banks and strengthen inspection and implementation, thus driving commercial banks to comprehensively improve their willingness to serve small and micro enterprises in terms of customers, scale, efficiency and quality." Wen Bin said.

Dong Ximiao said that increasing the weight of inclusive finance in the comprehensive performance appraisal indicators of bank branches will help promote banks to play the guiding role of appraisal baton, implement the policy of developing inclusive finance in grass-roots institutions, and increase credit supply in inclusive finance. (Yang Zhijin)