China bad loans could SOAR TO 10tn yuan

S&P Global warned that China's non-performing loans could reach as high as 10.1 trillion yuan (HK$11.19 trillion) if the coronavirus does not peak in April, while China's new loans in January had surged to a record high of 3.34 trillion yuan and is expected to climb even higher.

This comes as the People's Bank of China cut the benchmark one-year loan prime rate, as widely expected, by 10 basis points to 4.05 percent from 4.15 percent at the previous monthly fixing.

S&P Global predicted China's GDP growth could be as low as 4.4 percent if the epidemic peak does not come until April, which is a worst-case scenario, and some businesses and individuals struggle to repay their debt.

Even in the most likely scenario, in which the virus peaks in March, the NPL could rise to 7.8 trillion yuan, representing 6 percent of banks' total loans, said S&P Global.

"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.

The PBOC also lowered the five-year LPR by 5 basis points to 4.75 percent, lower than expected.

Meanwhile, the northern Chinese province of Hebei has established a special financing vehicle worth 50 billion yuan to help get the local economy up and running again. Banks in Shanghai have also issued 1.31 billion yuan in cheap loans to 48 key firms, a local government official said.

Consumption will be most heavily impacted by the coronavirus in the first quarter, and the government expects activity to bottom out in March and recover in the second quarter, said the Ministry of Commerce, adding that the government will study rolling out more support measures, including boosting auto sales.

The agricultural, food and industries that involve a long supply chain and are labor-intensive will be heavily impacted if the coronavirus crisis lasts for a long time, said Li Xinggan, Director of the Ministry's Foreign Trade Department.

In other news, more mainland developers issued bonds, with Yuzhou Properties (1628) introducing US$400 million notes due in 2025, at an interest rate of 7.7 percent per annum. Shares of mainland developers overall fell yesterday.

In the currency market, the onshore yuan weakened by 212 basis points to a half-month low of 7.0153 per US dollar as yesterday evening.