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UPDATE 1-China c.bank urges more lending to small firms amid COVID shocks

·2 min read

(Adds details, context)

BEIJING, May 26 (Reuters) - China's central bank said on Thursday it would promote more credit for smaller firms and boost financial institutions' confidence to lend funds, as policymakers struggle to get the COVID-stricken economy back on track.

The People's Bank of China (PBOC) urged national banks in a notice to prioritise lending to central and western regions, as well as areas and sectors hit hard by COVID-19 outbreaks.

Extended lockdowns in dozens of cities, including commercial centre Shanghai, have jolted production and consumption. China's economy weakened sharply in April and the nationwide survey-based jobless rate climbed to 6.1%, the highest since February 2020.

Many analysts believe the economy likely contracted in the second quarter, and have slashed their full-year growth forecasts, noting the government has shown no sign of relaxing its "zero-COVID" policy.

The PBOC notice on lending was the latest in a flurry of statements by authorities in recent weeks seeking to get companies back on their feet. New bank lending in China fell to the lowest in nearly four-and-a-half years in April.

Amid "increasing difficulties for some industries and firms impacted by the COVID outbreaks," the PBOC said it would work to improve the willingness and capability of financial institutions to serve small firms and lower their funding costs to stabilise economic growth and employment.

"Fault tolerance and risk mitigation systems should be improved to boost the confidence to lend," the notice said.

Small firms are the mainstay of the world's second-largest economy and a major source of jobs, but many them were hit hard by stringent and widespread anti-virus measures and disruptions in supply chains.

China's cabinet announced a package of policy steps earlier this week to support the faltering economy, including broader tax credit rebates and postponing social security payments and loan repayments.

Premier Li Keqiang said during a nationwide teleconference on Wednesday that China will strive to achieve reasonable economic growth in the second quarter and stem rising unemployment.

(Reporting by Ellen Zhang and Ryan Woo; Editing by Christopher Cushing and Kim Coghill)