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Policy Funneling Credit to Small Businesses Is Costing Small Banks Their Clients

By Lin Jinbing / Jun 27, 2019 03:21 PM / Finance

Photo: VCG

Photo: VCG

China’s policy to boost lending to small businesses has had unintended consequences for small banks.

In an attempt to meet government targets for lending to small enterprises, some big banks in some regions have poached high-quality clients from small and midsize local lenders by offering them lower interest rates, the law-enforcement inspection team of the Standing Committee of the National People’s Congress, China’s top legislature, said Wednesday in a report. Such clients typically have a low risk of default.

In recent years, the Chinese government has urged banks to increase lending to small businesses, which have suffered from the economic slowdown.

Regulators have required the country’s five biggest state-owned commercial banks to increase their outstanding loans to small businesses — defined as enterprises with total credit lines under 10 million yuan ($1.5 million) — by at least 30% year-on-year this year, and to lower the average interest rates on these loans by 1 percentage point. But the resulting price war among lenders is hurting small banks.

Read the full story later today on Caixin Global.

Related: In Depth: Banks Go to War to Meet Beijing’s Goal of Lowering Rates for Small Businesses

Contact reporter Lin Jinbing (

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