Illustration: Luo Xuan/GT

Under the daunting impact of the novel coronavirus assault, China's economic activity has taken a hit. Now as the country scrambles to restart its economic engine, a premium economic sector calls for extraordinary attention from the country's top decision-makers - the country's 4,000-odd banks. 

Last year, the US government's tariffs gambit and China's subsequent trade retaliations caused the economy to wobble at the lowest growth rate in three decades at just over 6 percent. That stress was transmitted to the country's financial system, as a number of companies failed to pay back loans, and as a result, smaller banks creaked under mounting bad debts. 

To prevent the risks from snowballing, the People's Bank of China, the country's central bank, rushed to restructure the troubled local lenders - including Baoshang Bank, Bank of Jinzhou, Hengfeng Bank, and Harbin Bank. Strategic investors were introduced to the four lenders and new capital was replenished. 

The bail-out of the four lenders in the severe financial strait was significant, because it nipped the risk in its infancy, and prevented it from spreading and hamstringing the holistic system. 

Currently, the coronavirus disease is still savaging Wuhan city and Hubei Province while shadowing other Chinese regions. The double whammy of the virus attack and America's trade war will batter China's economy, which faces a formidable job to deliver an annualized growth rate higher than 5.8 percent in 2020. 

This year is undisputedly the most difficult year for China in the past 30 years. But if the country's banking system is carefully managed and successfully weathers this ferocious hailstorm, the world's second largest economy is likely to regain its momentum in the second half of the year. 

The country should be all-out to prevent any systematic financial risk from forming and gaining tract. The banks must not fall and succumb to the deadly virus.

In 2019, the People's Bank of China conducted a stress test among 30 selected medium and large-sized lenders. In the scenario of GDP growth of only 5.3 percent, seven banks were found to fail the test. And, the central bank's 2019 China Financial Stability Report, published in late November, said 13 percent of a total of 4,379 lenders in the country - including hundreds of rural cooperative banks - face a "high risk" of capital inadequacy. 

The stress test and the central bank report, somber as they are, should sound the alarm bell for the policy-makers. And those small and medium-sized banks are more volatile to current uncertainties. China's banking regulators should not take a chance. 

On February 20, the central bank moved to cut the benchmark loan prime rate (LPR) by 10 basis points for a one-year loan and five basis points for five-year loans in an attempt to reduce borrowing costs of millions of Chinese enterprises and businesses. The rate cut is a double-edged sword, helping economic entities but trimming profit margins off the banks, which earn at a distance from depositing and loaning rates. 

Throughout 2020, China should maintain a relatively loose monetary policy so that all the lenders could have access to adequate funds from the interbank lending market to back up their daily operations. Tight market liquidity should be avoided. 

And, the central bank, together with China's Banking and Insurance Regulatory Commission, should implement stress tests on selected lenders at regular intervals to ferret out all types of operational hazards of the lenders, and resolve them promptly.  

The country's top five "too big to fall" state-owned mega banks, including ICBC, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications, own much stronger fundamentals and are unlikely to cave in to any stress caused by a slowing economy. 

But smaller banks with limited resources will face the brunt of pressure from the economic slowdown. Chinese regulators need to place proportionately larger supervisory manpower on them because those lenders will carry a great spillover risk. 

The author is an editor with the Global Times. bizopinion@globaltimes.com.cn