China's regulator tells banks to cut lending rates for small firms: Report

The move comes as Beijing's deleveraging campaign has gradually pushed up lending costs for the corporate sector and restricted companies from tapping alternative, murkier funding sources

China's financial regulator has told banks to "significantly cut" lending rates for small firms in the third quarter in comparison with the first quarter, two people with direct knowledge of the matter told Reuters on Monday.

In a non-public notice issued by the China Banking and Insurance Regulatory Commission (CBIRC) in late June, the regulator also asked banks to increase real-time monitoring of lending rates, the people said.

The CBIRC didn't immediately respond to an emailed request seeking comment.

The move comes as Beijing's deleveraging campaign has gradually pushed up borrowing costs for the corporate sector and restricted companies from tapping alternative, murkier funding sources such as shadow banking.

China's central bank does not disclose lending rates for small businesses. The weighted average lending rate for the non-financial corporate sector was 5.96 per cent in March, according to the latest monetary policy report.

Private companies and small businesses, whose financing costs tend to be much higher than those for large state firms, have suffered the most in the strained liquidity conditions.

Recent official surveys also show that tight funding has hit smaller manufacturers.

To ease refinancing pressure on small businesses - the backbone of the world's second-largest economy - China's central bank recently cut banks' reserve requirement ratios (RRRs) by 50 basis points (bps), releasing $108 billion in liquidity.

During high-level government meetings, Premier Li Keqiang has repeatedly urged that banks effectively lower financing costs, especially for small businesses and the agricultural sector.

In the June notice, Chinese banks were also told to keep asset quality and overall costs of their small business lending at a reasonable level, said the sources who declined to be named as they were not authorised to speak to the media.

The CBIRC has asked its branches nationwide to strengthen regulatory review to examine the progress made by banks, the sources said.