As lenders face a surge in bad debts caused by the corona , the capital levels of some banks may fall below key thresholds to cushion the financial crisis.

Beijing calls on banks Play a key role Support that struggled after the Covid-19 outbreak. Regulators have Instruct lenders to prepare to the slow recovery of the economy caused by the public health crisis, many industries and supply chains were temporarily closed, resulting in a significant increase in the level of non-performing loans.

However, many Chinese banks are already struggling with asset quality issues and lack the capital and profitability of new loans needed to drive recovery.

Analysts are divided over how much bad the current slowdown will generate. But even more modest forecasts suggest that bank capital may fall to unstable levels.

Rating agencies said that Fitch-rated banks' non-performing loan ratios are expected to rise to about 3.5% from 1.5% in June last year.

Fitch said that this situation would make the common tier one equity ratio of China Minsheng Bank, Huaxia Bank and China Guangfa Bank below the minimum regulatory requirement of 7.5%. It is expected that some other medium-sized banks will also approach this threshold.

"Ultimately, the asset quality of small and medium-sized banks will continue to suffer the most," said Grace Wu, Fitch's head of banking in Greater China.

The CET1 requirements are designed to protect banks from the financial crisis. If the banking system is hit, lenders below this level are considered to be at high risk of liquidity problems.

As of September, Minsheng Bank's total assets were 6.2 billion yuan [$ 873 billion], which is larger than Standard Chartered Bank, but still much smaller than large Chinese banks such as ICBC.

Due to concerns over credit quality, Moody's lowered the outlook for six medium-sized Chinese banks from stable to negative. The rating agency noted that Bank of Nanjing "has considerable risks in the manufacturing, wholesale and retail sectors, which have been severely affected by a corona virus outbreak."

Standard & Poor's warns that up to 11.5% of loans [about 2.1tn] in the commercial banking system could become "suspicious" debts, whether non-performing or overdue. S & P said this could eventually drain the industry's regulatory capital buffer, leaving some lenders vulnerable to liquidity shocks.

The independent firm Rhodium Group recently stated that it has found more than 150 million yuan overdue in 49 listed Chinese banks, with unrecognized or undeclared bad debts exceeding 2% of its official non-performing loan ratio. This shows that the true ratio of bad debt is much higher than the reported ratio.

Over the past two years, Chinese regulators have been highly alert to weak links in the banking system.

Last May, the took over Baoshan Bank is in troubleThis is the first such direct intervention in nearly 20 years. In the following months, two more banks with poor asset quality received government-backed bailouts.

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