(Yicai) March 25 -- Several commercial banks in China have already started to raise credit limits and extend maturity dates on personal consumer loans, with some even trimming interest rates, in response to a call made by the country’s financial regulators last week for lenders to relax lending conditions to boost spending.

Bank of China took the lead by increasing the borrowing limit for top-tier customers of its ‘Bank of China E-Loan’ to CNY300,000 (USD41,360) from CNY200,000 (USD27,570), but kept the term unchanged at one year. And it raised the ceiling of its ‘Suixin Smart Loan’ to CNY500,000 (USD68,930) from CNY300,000 and extended the repayment period to five years from three years.

Other major banks, including Industrial and Commercial Bank of China, China Merchants Bank and China ZheShang Bank, have also made similar adjustments to their loan limits and tenures, with some also cutting interest rates. More commercial banks are expected to follow suit, a staff member at a joint-stock bank told Yicai.

These moves not only align with regulatory requirements but also aim to ease the repayment pressure for borrowers who are struggling financially so as to prevent defaults, Wang Pengbo, chief analyst at Botong Consulting, told Yicai.

Commercial banks’ non-performing loans climbed to CNY3.4 trillion (USD469 billion) as of Sept. 30, 2024, driven by a big jump in bad loans for credit cards, personal consumer loans and business loans, according to data from the National Financial Regulatory Administration. For instance, credit card debt that had not been paid for more than six months soared 15.4 percent in the third quarter last year from the previous quarter to CNY121.6 billion (USD16.8 billion).

However, for borrowers, higher loan caps and longer terms could be a long-term debt trap. If the term on a CNY200,000 (USD27,500) loan with at 5 percent annual interest rate is extended to five years from three years, it reduces monthly repayments, but the total interest the borrower would have to pay will jump to CNY50,000 (USD6,893) from CNY30,000 (USD4,136), a credit manager at a joint-stock bank told Yicai.

For lenders, relaxing loan conditions also comes with risks. "Lower barriers could attract higher-risk borrowers, further driving up bad loan ratios. If the economy takes a downturn and defaults pile up, this could put pressure on banks’ profits and capital reserves, and even trigger a liquidity crisis," a banking insider said.

Editor: Kim Taylor