April 25, 2019 / 7:07 AM / 6 months ago

China big banks hiked small business loans 17 pct in Q1, reduced interest rates -regulators

BEIJING/SINGAPORE, April 25 (Reuters) - Chinese banks have extended more loans at lower interest rates to small firms in the first quarter, heeding Beijing’s call to support the economy, banking regulators told a news briefing on Thursday.

The amount of outstanding loans to small enterprises at China’s five largest state lenders rose to 1.99 trillion yuan ($295.7 billion) by the end of March, up 17 percent from the end of 2018, said Zhu Shumin, vice chairman of the China Banking and Insurance Regulatory Commission (CBIRC).

The growth rate of their small business lending outpaced the average loan growth rate by 12.4 percentage points, Zhu said. China’s so-called Big Five banks accounted for nearly one-fifth of total small business lending in China.

Small businesses’ borrowing cost also dropped over the first quarter, Zhu said, with the banking sector’s average interest rate for such loans lowered to 6.87 percent in the first quarter industry-wide, from 7.39 percent in 2018, Zhu said.

At the briefing, the interest rate of loans to bigger companies in Q1 was not disclosed.

To spur economic growth and lift market confidence, Beijing is pushing the Big Five banks to significantly boost lending to small businesses by at least 30 percent this year, but the move is raising concerns about the risks of looser lending standards and a further jump in bad loans.

STAYING SLIGHTLY PROFITABLE

The biggest banks had met 55 percent of their annual targets for small companies by end-March, Zhu said, adding that the average interest rate was low as 4.76 percent, down 0.13 percentage point from the fourth quarter last year.

“If banks can control risks with a below 3 percent bad loan ratio, their interest rate should be set between 5-5.7 percent for them to stay slightly profitable and commercially sustainable,” Li Junfeng, head of the financial inclusion department of CBIRC, told reporters at the briefing.

“We don’t encourage banks to set their interest rates for small enterprises below the benchmark lending rate,” Li said.

China is also promoting a new loan product that uses companies’ credit history and tax records to increase banks’ ability to access small businesses’ creditworthiness, said Chen Hongwan, head of the Department of Fiscal and Financial Affairs at the National Development and Reform Commission.

So far, banks have lent more than 1.5 trillion yuan to small enterprises using the new tool, with the bad loan ratio controlled under 1 percent.

Yi Gang, the central bank governor, said in March that the non-performing loan ratio for lending to small enterprises industry-wide stood was 6.2 percent in 2018. China has not announced the ratio for the end of the first quarter. ($1 = 6.7291 Chinese yuan) (Reporting by Cheng Leng in BEIJING and Shu Zhang in SINGAPORE; Editing by Richard Borsuk)

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