China Construction Bank supports the covid-19 epidemic fight

As the epidemic faded away, the global economy gradually recovered as governments and central banks tightened their monetary policies. Despite a series of measures taken by Chinese authorities to maintain the economy's and financial system's stability, the Chinese economy remains in a downward spiral. The fight against the epidemic has become a long-term strategic goal for China Construction Bank, making an outstanding contribution to the public good and China's real economy. In this blog, I will discuss CCB's efforts to combat the epidemic of non-performing loans and financial inclusion.

                

Non-performing loans

The real estate sector, which is the backbone of the Chinese economy, was particularly hard hit during this period, with investment in the sector falling by 10% in 2022 compared to the previous year  (Voachinese, 2022). At the same time, the commercial property developers' backlog of pre-sold homes has put downward pressure on prices. To relieve economic pressure, China Construction Bank has established a US$4.2 billion real estate fund (Bloomberg, 2022). In order to prevent the epidemic from spreading, the Chinese government implemented a closure control policy, forcing a large number of businesses to halt operations and production. According to the data, China's unemployment rate peaked at 6.1% in April 2022 (statists, 2023).  

(Source: Statista)

Many unemployed people have difficulty repaying their home loans, which has increased the number of non-performing bank loans. As a result, loan forgiveness programmes have been promoted by China's five largest banks. The Big Five are China's largest state-owned banks, and they are better equipped to deal with the problem of non-performing loans than other banks because they have superior loan assessment and processing capabilities (Kryzanowski, et al., 2023). Among them, China Construction Bank (CCB) offers its customers deferred repayment services and allows them to adjust their repayment plans in response to the local epidemic situation. Furthermore, CCB opened a channel for customers who were affected by the epidemic and had overdue repayments to apply for credit repair (Globaltime, 2022). At the end of 2019, China's central bank reduced the five-year loan prime rate from 4.8% to 4.3%. Borrowers who pay off their mortgages early have reduced bank revenues in China, but the move has allowed borrowers to pay less interest on their loans (Writer, 2023).

(Source: Moody's Investors Service)

Financial Inclusion

What is financial inclusion？

（Source: YouTube）

The CCB has implemented a number of financial measures to aid workers' and businesses' return to work and production. The development of inclusive finance, as well as the transformation and upgrading of the manufacturing sector, is strongly supported by the CCB. CCB established a green channel for the loan approval in enterprises severely impacted financially by the epidemic in order to restore the integrity of their industrial and supply chains. CCB made loans to businesses totalling RMB119.4 billion in the first half of 2022 (Royle, 2020). To broaden the scope and practicality of inclusive financial services, CCB shifted its focus from urban to rural areas, integrating it with long-term poverty alleviation initiatives. It increased lending to agricultural-related industries to ensure agricultural product supply. CCB issued RMB 200.47 billion in agricultural loans by the end of June 2020 (CCB, 2020). CCB classified rural revitalisation and precise poverty alleviation as financial services objectives to contribute to achieving the UN Sustainable Development Goals.

The Future Prospects

As covid-19 is gradually receding, the global economy is slowly moving towards recovery. The CCB is optimising its credit structure and promoting financial inclusion to aid China's economic development. We hope that other banks can learn from this experience in order to meet the challenges that lie ahead.

References:

1. Bloomberg (2022) China plans $4.2 billion fund to buy realty from developers. [online] Available at: https://economictimes.indiatimes.com/news/international/world-news/china-plans-4-2-billion-fund-to-buy-realty-from-developers/articleshow/94424726.cms?from=mdr [Accessed 10th Mar 2023].

2. CCB (2020) Latest Announcement – CCB. [online] Available at: http://en.ccb.com/en/announcement/v3/20200911_1599806004.html [Accessed 10th Mar 2023].

3. Globaltimes (2022) Update: Five of China’s largest banks announce COVID mortgage relief - Global Times. [online] Available at: https://www.globaltimes.cn/page/202204/1258767.shtml [Accessed 10th Mar 2023].

4. Kryzanowski, L., Liu, J. and Zhang, J. (2023) 'Effect of COVID-19 on non-performing loans in China', Finance Research Letters, 52. [online] Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9494920/ [Accessed 10th Mar 2023].

5. Royle (2020) China Construction Bank Spearheads Anti-COVID-19 Initiatives To Support China’s Economy. [online] Available at: https://pubs.royle.com/publication/?i=659395&article_id=3669511&view=articleBrowser [Accessed 10th Mar 2023].

6. Statista (2023) Available at: https://www.statista.com/statistics/1109881/surveyed-monthly-unemployment-rate-in-china/ [Accessed 10th Mar 2023].

7. Voachinese (2022) For the first time on record, China's real estate sector, the backbone of the economy, has had a dismal 2022. [online] Available at: https://www.voachinese.com/a/china-s-2022-property-investment-falls-for-first-time-since-1999-20230117/6922126.html [Accessed 10th Mar 2023].

8. Writer, S (2023) Chinese bank earnings threatened by early mortgage payments. [online] Nikkei Asia. Available at: https://asia.nikkei.com/Business/Finance/Chinese-bank-earnings-threatened-by-early-mortgage-payments [Accessed 10th Mar 2023].

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