China to encourage banks to lend more to small firms, central bank says

BEIJING: China's central bank said on Monday it would encourage banks to lend more to small firms by stabilising their funding costs and allowing them to tolerate more bad loans.

China aims to build a long-term mechanism to make banks "dare, willing and able" to lend more to small firms, the central bank said in a statement on its website.

China will encourage banks to reasonably set deposit rates to stabilise funding costs, and unleash potential from previous loan prime rate (LPR) reforms to consolidate falls in real lending rates for small firms, the central bank said.

Last month, an industry body said China's reforms to the way banks calculate deposit rates would help ease pressure on banks' funding costs, although the impact on lenders and depositors would be limited.

Chinese authorities have unveiled a raft of policy measures since early last year to support small businesses but have been hit harder by the COVID-19 outbreak.

China would increase its tolerance for non-performing loans for small businesses, the central bank said.

The central bank will continue to use re-lending, re-discount tools to guide banks to lend more to small firms, while encouraging small and medium-sized banks to issue special bonds for financing small firms.