China orders banks to boost financial support to small firms

A 100 Yuan note is seen in this illustration picture in Beijing March 7, 2011. REUTERS/David Gray/File Photo

BEIJING (Reuters) - China’s banking and insurance regulator on Wednesday urged banks to continue increasing lending to smaller firms and further cut their financing costs, as policymakers work to avert an economic slowdown.

Banks should work hard to achieve targets on increasing loans for small companies and keep the lending rates on a reasonable level, the China Banking and Insurance Regulatory Commission (CBIRC) said in a statement on its website.

Big state-owned commercial banks should increase outstanding loans to smaller companies by more than 30 percent in 2019, the CBIRC said, adding that it would also increase its tolerance for non-performing loans at small companies.

The regulator reiterated its demands for state-owned banks to target faster growth in loans to small businesses as economic growth slowed to its weakest in nearly three decades in 2018.

Chinese banks have been wary of lending to smaller firms with higher credit risks, preferring state-backed customers. But authorities have been urging lenders to help keep cash-strapped private firms afloat, sparking concerns that looser lending standards will expose banks to more bad loans.

China’s central bank chief said on Sunday that lending rates for small firms were still relatively elevated due to high risk premiums and that the country will push ahead with interest rate reforms to resolve the issue.

Commercial banks are also encouraged to issue special financial bonds, and ensure that proceeds raised are used for loans to small and micro firms.

The regulator also said it would support insurers to provide credit-boosting support for smaller firms if the risks are manageable.

Insurance companies are encouraged to invest in financial products including securitisation products backed by loans to smaller firms to ensure more flexible support for those companies.

Reporting by Lusha Zhang and Se Young Lee; Editing by Jacqueline Wong