Big Banks Urged to Give Small Businesses Their First Loan
As a price war intensifies among banks competing to offer loans to small businesses, China’s central bank said that it will encourage large banks to provide more support for smaller companies that have yet to borrow money from financial institutions.
“(Our) demand for large (state-owned commercial) banks this year is to focus more on ‘first loans’ (for small businesses),” Zou Lan, a deputy head of the Financial Market Department of the People’s Bank of China (PBOC), said at a Monday briefing in Beijing.
The term “first loan” refers to the first loan obtained by a company that hasn’t yet received a loan from a financial institution, as recorded by the PBOC’s credit reporting system, Caixin has learned.
A price war of lower and lower interest rates on loans to small businesses has broken out among banks as the government has made supporting these businesses a greater priority since last year amid an economic slowdown. Across the country, local branches of the China Banking and Insurance Regulatory Commission (CBIRC) have been guiding banks to bring down financing costs for small enterprises, Caixin has learned.
Smaller lenders such as urban and rural commercial banks have come under great pressure from the competition. “Our better clients have been lured away by the big banks with lower interest rates,” a person in charge of a rural bank’s small business lending department told Caixin.
At Monday’s briefing, Zou specifically said that big banks shouldn’t poach clients from smaller lenders.
The Chinese government has pledged to continue its support for small businesses, aiming to expand the country’s five biggest state-owned banks’ lending to small businesses — defined as companies with total credit lines under 10 million yuan ($1.5 million) — by at least 30% this year and to lower their borrowing costs by 1 percentage point.
At the end of May, the five banks expanded outstanding loans to these small businesses by 23.7% compared with the end of last year, moving closer to the annual target of 30% growth, according to Zou. In the first five months this year, the average interest rate of the loans the banks issued to small businesses was 4.79%, down 0.65 percentage points from last year’s average.
Since October, policymakers have issued a multitude of policies to aid the struggling private sector and small businesses, such as tax and fee cuts. In an effort to spur lending, the central bank has lowered the percentage of funds that banks must hold in reserve. The CBIRC also said that it will tolerate higher nonperforming loan ratios for rural commercial banks’ loans to small businesses.
At the end of May, banks’ total outstanding loans to small businesses rose 21% year-on-year to 10.3 trillion yuan, Zhang Jinping, a deputy head of the CBIRC’s Financial Inclusion Affairs Department, said at the briefing. Of these loans, 11.3% were loans without collateral, up 2.5 percentage points from the end of last year to the end of May, she said.
Contact reporter Timmy Shen (firstname.lastname@example.org, Twitter: @timmyhmshen)
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