China calls on banks to give up US$212 billion in profits to finance cheap business lending

China’s government is reaching beyond its monetary policy tool box to free up capital and direct funds towards the nation’s cash-starved businesses to help the economy claw its way out of its worst slump in four decades.

The government has called on banks to sacrifice as much as 1.5 trillion yuan (US$212 billion) in profits this year to finance cheap loans, cut fees, defer loan repayments and grant more unsecured loans to help small businesses survive the downturn caused by the coronavirus lockdown.

Separately, the State Council, China’s cabinet, signalled late on Wednesday that it would cut the amount of reserves banks are required to hold at the central bank, freeing up more money to spur lending.

“We are guiding the market to lower lending rates through interest-rate reform,” Yi Gang, the governor of the People’s Bank of China (PBOC), told the Lujiazui Forum on Thursday, confirming the move was a de facto cut in interest rates. “Financial institutions are urged to sacrifice profits to benefit corporate borrowers, helping reduce their borrowing costs.”

Yi added that the PBOC would achieve the goal by directing financial institutions to offer lower lending rates, adding fresh funds at low rates that can be accessed by borrowers directly, and slashing service fees.

The profits to be sacrificed would be equivalent to roughly 75 per cent of the entire net profit of the commercial banking industry in 2019, based on the data from China Banking and Insurance Regulatory Commission (CBIRC).

China’s US$41 trillion banking system

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Germany Boosts Debt by Another $70 Billion to Finance Stimulus

(Bloomberg) — The German government plans to raise a further 62.5 billion euros ($70 billion) in debt to help pay for a massive stimulus program designed to pull Europe’s largest economy out of its worst recession since World War II.

That would bring total borrowing this year to 218 billion euros and raise the debt burden to 77% of gross domestic product, according to government officials, who asked not to be identified by name in line with briefing rules.

Chancellor Angela Merkel’s cabinet is due to sign off on the supplementary budget on Wednesday before it goes to parliament for approval. Earlier this month her coalition agreed to a sweeping 130 billion-euro stimulus package to spur short-term consumer spending, and get businesses to invest again.

Finance Minister Olaf Scholz has repeatedly said that Germany’s financing needs are manageable and that the government can also fall back on unused surplus funds. The country has slashed debt from over 80% of gross domestic product in the wake of the 2008 financial crisis to around 60%, giving it room for extra borrowing.

Germany’s new borrowing requirements mark an extraordinary about-turn from years of fiscal discipline that produced balanced budgets. In March parliament had already approved extra debt of 156 billion euros as part of a supplementary budget request.

Gross domestic product is expected to contract by 6.3% this year. Following a collapse of output in March and April, activity is expected to bounce back sharply in May and June, followed by more moderate

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