China’s efforts to resolve financial risks slowed by virus – local central bank head

BEIJING (Reuters) – China’s efforts to resolve risks among high-risk financial institutions have been hampered by slower economic conditions caused by the outbreak of the new coronavirus, the head of a provincial branch of the central bank told Reuters.

The government dropped its annual growth target in its 2020 work report delivered at the open of the National People’s Congress on Friday, with Premier Li Keqiang warning that financial risks are mounting in the world’s second-biggest economy.

“The epidemic has affected the work done in the past on financial risk prevention,” said Xu Nuojin, head of the People’s Bank of China’s Zhengzhou branch in central Henan province.

“The outstanding risks could be intensified, and the new risks are taking shape,” Xu told Reuters in a telephone interview on Saturday on the sidelines of the annual parliament meeting.

Regulators have cracked down on high-risk financial institutions to fend off systematic risks, most prominently with the shock government takeover of the then little-known Baoshang Bank last year.

Then the epidemic hit, causing China’s economy to contract for the first time in decades.

The PBOC said on Saturday regulators were extending their temporary custodianship of Baoshang, based in the northern Chinese region of Inner Mongolia, by six months due to the epidemic.

“It’s impossible to require some of the financial institutions, already weak in health, to operate normally during the shock of epidemic,” Xu said.

“We have to roll out more tolerant measures and extend the grace period appropriately when tackling risks.”

In 2019, regulators also led state rescues of two medium-sized banks – Bank of Jinzhou and Hengfeng Bank – hit by liquidity strains due to depositor worries about asset quality and the state of local economies.

Xu said local regulators and governments had participated in recent efforts to resolve risks at Evergrande Group-backed Shengjing Bank, based in northeastern Liaoning province, and Pingdingshan Bank, a small lender in Henan.

“Financial risks will be resolved and prevented as the epidemic is brought under control,” Xu said.

“This theme will not change.”