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New hope for SMEs

By Mao Lijun (China Daily)
Updated: 2008-06-02 10:34

Li Yirong, president of a hi-tech small firm, sees hope when hearing that the small- and medium-sized enterprises (SMEs) will be guaranteed financial support this year by the country's banking regulator.

"The government is determined to solve the problem despite the tightened monetary policy this year," Li says.

For regulators, successfully solving the problem between credit control and sufficient funding for the SMEs is one of the keys to increase employment and achieve sound and quick economic development, amid expectations of continued high inflation this year.

For Li, as president of the Beijing Science and Development Co, which has invested in some of high-tech programs, the funding means whether he will be able to continue the development of the programs and harvest his returns.

"That will give us more incentive to develop the SMEs," Li tells China Business Weekly.

Due to the tightening monetary policy, many SMEs worried they cannot instantly get funding for the projects they developed which is kept growing and in bad need of capital.

Realizing that the credit control policy may intensify SMEs' difficulties in getting loans from banks, the China Banking Regulatory Commission (CBRC), the country's banking regulator, called for State-owned commercial banks to adjust their loan structure by serving more SMEs and to give priority to SME financing.

The regulator stated on its website that the country's banks must meet their responsibility of guarantee the financial needs of SMEs to ensure sound and quick economic development.

It said that banks' loan growth to SMEs this year should be no less than the average increase for all loans.

"Local lenders should stick to the tight monetary policy and control overall loan volume. But the credit control should not hurt the loan demand of SMEs," Wang Zhaoxing, vice-chairman of the China Banking Regulatory Commission (CBRC), told media earlier.

The five banks, Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China and Bank of Communications, have been asked to play an important role in financially supporting SMEs as they have national networks and huge assets and capital.

The CBRC has urged the five big banks to change their attitude towards lending to SMEs and improve their financial services for SMEs.

The banking regulator has set up a team on SME financial services under a department that supervises the five State-owned banks.

The State-controlled banks still tend to prefer to lend to State-owned enterprises, which enjoy strong guarantees from local governments.

The situation needs to change, the banking regulator said, or the state banks risk losing lucrative business to foreign competitors, which have full access to the domestic market and lend to high-quality SMEs.

As SMEs are often treated as having little creditworthiness which makes it difficult to get loans, the CBRC suggested lowering tax rate for bank institutions on interest income from loans to SMEs.

"Banks should be allowed to write off partial losses from SMEs before taxation and set aside a full amount of capital as reserves for SMEs loans before taxation," Liu Mingkang, president of the CBRC told media earlier.

He also asked to cut additional costs for financing SMEs and establish a sound credit environment for loans lending to small enterprises.

The CBRC said it would make more flexible regulations to help banks lend more to SMEs and control SME loan-related risks. The regulations will involve the bad loan provisions, capital adequacy ratios and the classification of bank loans.

Under collective efforts with the CBRC and the commercial banks, some achievements have been made.

Major commercial banks have set up departments to serve SMEs. Many credit loan products targeting SMEs have been developed by banks.

Some banks have even established special sub-branches to serve small enterprises.

Banks have also built different SME loan management systems to monitor lending risks, which are much higher than those loans to big enterprises.

After the long time effort, SME financing has made progress.

By the end of 2006, loans to small enterprises stood at 5.35 trillion yuan (about $764 billion), 15.8 percent more than a year ago. Small enterprise loans accounted for 23.7 percent of total yuan loans of all the commercial banks in China in 2007.

The big five banks had offered 1.79 trillion yuan loans to 684,300 small enterprises by the end of 2006, a 9.87 percent increase than a year ago.