CICC: PBOC's credit repair policy is favorable for domestic banks, expected to stimulate growth in personal credit, including consumer loans and mortgage loans.

Zhongjin released a research report stating that on Monday (22nd), the People's Bank of China issued a notice regarding the implementation of a one-time credit repair policy. It stated that for individual overdue information with a single amount of less than 10,000 yuan from January 1, 2020 to December 31, 2025, borrowers who fully repay by March 31, 2026 will be exempt from credit reporting. The bank believes that under the financial policy of expanding domestic demand, this policy, by eliminating specific credit default records affected by factors such as the epidemic, can help improve the credit of individuals with damaged credit records but have the ability and willingness to repay, indirectly releasing consumption and financing needs and is a policy measure to expand domestic demand in the financial sector. The report pointed out that the applicable condition for this policy is clearly a single overdue amount not exceeding 10,000 yuan, rather than a loan balance not exceeding 10,000 yuan, which has a broad coverage. It includes not only personal small loans such as credit cards and consumer loans, but also can cover large and medium-term loans such as mortgages. According to calculations based on a monthly payment of 10,000 yuan, an average interest rate of 3.1%, and a term of 30 years, the maximum amount of personal mortgage loans is about 2.3 million yuan. According to data previously released by the People's Bank of China, the bank estimated that the average size of Chinese mortgage households is only around 400,000 to 500,000 yuan, and it is expected that this policy will cover the majority of mortgage borrowers. Zhongjin pointed out that credit repair is not the same as debt forgiveness. The credit repair policy is fundamentally different from the exploration of personal bankruptcy systems in places like Shenzhen and Xiamen. The former corrects the default after the debt is repaid, terminates public disclosure, lifts sanctions, restores credit ratings, and financing/access qualifications, but does not forgive the debt; the latter is a court-led partial or complete debt relief for honest but unfortunate debtors. Therefore, credit repair does not involve debt forgiveness, and will not lead to debt evasion. The limit of 10,000 yuan per transaction and the requirement to fully repay overdue loans also maintain credit constraints on those who have not repaid on time or who have large overdue amounts, avoiding moral risks. The bank believes this is favorable for stimulating domestic credit demand. For domestic banks, through credit repair incentives, the policy encourages overdue borrowers to voluntarily repay their debts, helping financial institutions accelerate the recovery of non-performing assets and improve asset quality. At the same time, the policy is implemented only once and does not set a long-term continuation mechanism, preventing potential moral risks in the future from the design of the system. After credit repair, the potential financing demand affected by credit records can be released, and the bank expects to drive the issuance of personal credit products such as consumer loans, mortgages, and business loans, boosting credit demand. However, in an environment where the overall household macro leverage rate is declining and credit demand still needs to recover, improving credit demand also requires further policy support from the fiscal, real estate, and other sectors. Overall, the central bank's credit repair policy is beneficial for domestic banks, effectively encouraging overdue debtors to repay their debts and improve asset quality. The policy covers all financial institutions, and is more beneficial for state-owned large banks with more cautious risk control and better customer quality, as well as Shanghai Dragon Corporation.