Two lenders in eastern China have requested the People’s Bank of China (PBoC), the country’s central bank, to ease capital adequacy assessments.

This move has been encouraged by the central bank and local regulators, Reuters reported citing people familiar with the matter.

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Lowering one indicator of capital health is said to help small and mid-sized banks free up funds for loans to support the economy amid the Covid-19 pandemic.

One of the two people said: “The lower it is, the easier it is for us to meet the regulatory requirement for capital adequacy.”

The same person added that the central bank is expected to grant the request this month.

However, it is not known to what extent PBoC will lower the requirements for the indicator of capital health and how many banks are taking similar steps, the report added.

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The government of China has urged financial institutions to let go CNY1.5trn ($214bn) in profits this year to help revive the economy from the impact of Covid-19.

As a result, financial institutions have taken several measures, including increasing lending, lowering interest rates and slashing fees.

The local governments were also given the green light to use proceeds from the sale of special bonds to recapitalise some small banks, according to Reuters.

However, the China Banking and Insurance Regulatory Commission (CBIRC) has warned the banks to brace for a significant surge in bad loans due to coronavirus.

The regulator noted that the deterioration of asset quality at some small and mid-sized financial institutions was accelerating.