Bloomberg:
Hello, I'm a reporter with Bloomberg and my question is for Mr. Liu. You just mentioned the stability of the banking system. According to the Financial Stability Report released by the PBC in 2019, a stress test was conducted where 17 major banks failed and more than 180 large banks failed the liquidity test under the condition that the growth rate of the GDP was less than 4.1 percent. This year, the rate is estimated to be 3.1 percent, far less than the worst case scenario of 4.1 percent last year, how do you evaluate the banks' performance and will there be a new stress test? Thank you.
Liu Guoqiang:
The banking industry stress test in 2019 was based on macroeconomic econometric models, historical scenarios and expert judgment, and was mostly based on assumptions. This situation is "extreme but possible," with the possibility relatively small and is a hypothetical requirement. Since the outbreak, we have closely monitored the risk to the banking system, systematically assessed the impact of the outbreak on the banking industry and conducted stress tests. Some new test results will be disclosed in a timely manner through the Financial Stability Report and the report will be updated.
The epidemic has caused a large short-term impact on the economy. Some industries have suffered greatly and the risk will inevitably increase. There is also a downward pressure on banks' credit assets. But overall, China's banking industry has shown a strong loss-absorbing and anti-risk capacity. By the end of 2019, the non-performing loan ratio of China's commercial banks was 1.86 percent, far below the 5-percent regulatory standard. The provision coverage ratio was 186.08 percent and the reserve for loan loss was 4.5 trillion yuan. This is sufficient to cushion rising non-performing loans. In 2019, the banking industry disposed of 2.3 trillion yuan of non-performing assets, and there are diverse measures to monitor banks' asset quality. Although it is difficult for some banks, they have the ability to ease the pressure.
Zhou Liang:
Mr. Liu has given us a comprehensive introduction. The stress tests conducted by the PBC under the macro-prudential policy framework took into consideration extreme difficulties, which may not actually happen. Meanwhile, the CBIRC's supervision has shown a capital adequacy ratio of 14.6 percent. We will step up efforts to handle non-performing assets. Since the beginning of the year, a plan has already been put on the agenda. In terms of capital replenishment, we will continue to broaden the channels, such as issuing capital supplementation bonds, preference shares and common shares, so as to increase banks' endogenous capital supplement. If these plans are carried out step by step, there won't be major problems. Market performance will prove this. Recently, the “northbound” investment begins to flow into the Chinese stock market, as both the country's capital market and stock price of banks have remained relatively stable. In other words, our banking sector is sound in terms of policy, market and institutional performance. Thank you.
