BEIJING, July 12 (V7N) – Chinese banks are facing difficulties in adhering to new government regulations designed to boost consumer credit, as they deal with an increasing number of defaults on personal loans. These financial institutions are finding it challenging to identify households in stable financial conditions that are still willing to take out loans.
The Chinese government's recent push for increased consumer lending is aimed at stimulating domestic demand and driving economic growth. However, banks are grappling with a mounting backlog of loan defaults, particularly from consumers who took out personal loans during a period of economic optimism but are now struggling to repay them due to sluggish economic recovery and the lingering effects of the COVID-19 pandemic.
An anonymous senior executive at a major state-owned bank in China shared concerns that, while they were under pressure to meet lending targets, they could not find enough eligible borrowers. "We are cautious about lending, but the government has set aggressive targets for consumer credit growth, making it difficult to balance our risk exposure," the executive said.
Recent data shows that defaults on personal loans have surged, particularly in the private sector and smaller cities, where wages have stagnated and unemployment rates remain high. The new guidelines from Beijing are seen as a response to the slowdown in consumer spending, but banks are concerned that it might lead to more bad debts if lending standards are loosened.
Despite these challenges, many Chinese banks are attempting to comply with the government's demands. They are increasingly relying on digital platforms and alternative lending models to reach a wider pool of potential borrowers. However, these measures have yet to show significant results.
According to analysts, the situation may worsen in the coming months as the global economic environment remains uncertain and households face rising inflation and living costs.
Key Highlights:
Chinese banks struggling to meet new consumer credit guidelines.
Surge in defaults on personal loans affecting bank stability.
Economic recovery slow, leaving fewer financially stable borrowers.
Government pressures may increase risks for banks as lending standards soften.
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