China’s regulators have revealed that the country will be moving away from setting sharp growth targets at its biggest banks, in an effort to increase lending to small businesses (SMBs).
In the past, small businesses have been impacted more by the government’s efforts to reduce financial risk, with banks hesitant to lend money to these firms due to their higher default rates. In March, the China Banking and Insurance Regulatory Commission (CBIRC) released new guidelines aimed at getting banks to increase lending to small businesses, asking lenders to increase the number of loans issued to small and micro-enterprises by 30 percent by the end of 2019 — compared to the beginning of the year.
On Tuesday (Nov. 12), it was announced that the country’s Big Five state-owned banks have increased their small business lending by 48 percent in the first nine months of 2019, more than the 30 percent target set earlier in the year. At the end of September, small and micro-sized business loans were at ¥36.39 trillion ($334.7 billion USD), with inclusive finance loans at ¥11.3 trillion, a 20.81 percent increase from the beginning of the year.
“Going forward, we want to shift away from growth targets to more comprehensive measures for evaluating banks, and have differentiated requirements for different banks,” said Li Junfeng, director of the inclusive finance department at CBIRC.
In March, CBIRC also ordered lenders to offer SMB loans at reasonable rates, and they have complied. The average rate for inclusive finance loans was at 6.75 percent in the first nine months, a decrease of 0.64 percent from 2018. For the Big Five banks, the rate was lower at 4.75 percent, down 0.68 percent from last year. The non-performing loan ratio for inclusive finance loans was around 3.56 percent, down 1.3 percent year on year, Li explained.