Exclusive-China tells banks to roll over local government debts as risks mount - sources

investing.com:

BEIJING (Reuters) -China has told state-owned banks to roll over existing local government debt with longer-term loans at lower interest rates, two sources with knowledge of the matter said, as part of Beijing's efforts to reduce debt risks in a faltering economy.

Debt-laden municipalities represent a major risk to the world's second-largest economy and its financial stability, economists say, amid a deepening property crisis, years of over-investment in infrastructure and huge bills to contain the COVID-19 pandemic.

Local government debt reached 92 trillion yuan ($12.58 trillion), or 76% of the country's economic output in 2022, up from 62.2% in 2019.

Part of that is debt issued by local government financing vehicles (LGFVs), which cities use to raise money for infrastructure projects, often at the urging of the central government when it needs to boost economic growth. Empty coffers could make it harder for Beijing to kickstart a sputtering economic recovery.

The People's Bank of China (PBOC) issued orders last week to major state lenders to extend terms, adjust repayment plans, and reduce interest rates on outstanding loans to LGFVs, according to the sources.

Loans that were due in 2024 or before will be categorized as «normal» instead of non-performing if they overdue, and that won't affect banks' performance evaluations, one of the sources said. Reuters is reporting these measures for banks to defuse local debt risks for the first time.

The sources didn't specify how much of debt will be restructured.

To ensure banks do not incur heavy losses from the debt restructuring, interest rates on rolled over loans should not be below China's Treasury bond rates, said one source, adding that loan terms should not exceed 10