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Moody's: China's call for more bank lending to private firms is credit negative

Chinese government's call for more bank lending to privately owned enterprises is credit negative for banks' asset quality given higher loan delinquencies among such companies focused on cyclical sectors and other risks, Moody's said.

The rating agency said privately owned enterprises and micro and small enterprises focused on cyclical sectors such as manufacturing, real estate, and wholesale and retail have experienced higher loan delinquencies amid China's slowing economy. It expects the debt-servicing capacity of borrowers in these cyclical sectors to remain vulnerable to a slowing economy.

Moody's, however, said Chinese commercial banks are in a good position to mitigate the potential rise in asset risk associated with increased lending to privately owned enterprises, given the improvement in their loan underwriting standards and risk management.