China has unveiled fresh incentives to encourage commercial banks to lend more to cash-strapped small businesses, the official Financial News reported on Wednesday. It cited the China Banking Regulatory Commission as saying that the regulator would tolerate higher bad loan ratios at banks when they lend to small firms, which create 80 percent of jobs and generate 60 percent of industrial output in China.
The banking regulator would exclude loans below 5 million yuan when calculating banks' loan-to-deposit ratios and regard them as retail instead of corporate lending, lowering the provisions banks need to put aside, the report said. The move will "support commercial banks to increase their lending to small companies, improve credit structures, reduce the concentration of loans, promote sustainable development of financial services to small firms and push ahead industrial upgrading and economic restructuring," the CBRC was quoted as saying.
The CBRC also plans to give preferential treatment to banks viewed as helping fund small firms in approving bank bond issuances. China's small businesses, most of them privately owned, have been complaining about a credit crunch as state banks return to the old habit of lending more to state-owned firms.
"These market-oriented measures will encourage banks to increase their lending support for small firms, help ease the funding difficulties of small companies and also help banks better price their loans," Wan Li, an analyst at BoCom International in Beijing, said in a research note.
Chinese regulators have repeatedly called banks to boost lending to small companies. However, without strong incentives, banks still favour big state firms for their low risks of default, although loans to small firms are usually priced higher.
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