China expands lending to fund-hungry small firms

Chinese banks have extended more loans to small firms to ease their financial predicaments as the government tightens monetary supply, a banking regulator said Wednesday. Outstanding loans to small firms grew 26.6 percent year-on-year to hit 9.85 trillion yuan (1.55 trillion U.S. dollars) at the end of July, said Xiao Yuanqi, an official in charge of financial services for small enterprises at the China Banking Regulatory Commission. The growth was 10 percentage points higher than that of the banks' total outstanding loans, Xiao told Xinhua. More than 100 commercial banks have set up special operations to ease small firms' difficulties getting access to bank credit, he noted. The figures came at a time when China is trying to balance the missions of countering inflation and sustaining the growth of small enterprises. The People's Bank of China, or the central bank, has raised the benchmark interest rate three times this year and increased the reserve requirement ratio six times. The measures bit into small, cash-strapped companies, which are already disadvantaged in seeking bank support due to insufficient collateral. Only 15 percent of China's small enterprises could get loans from banks and half of them had to resort to private lenders, according to a report by the National School of Development with Peking University in July. With tighter liquidity and stricter regulatory requirements on capital-adequacy ratios and loan-deposit ratios, banks are more reluctant to lend to small firms, said Ai Min, a retail banking general manager with China Minsheng Banking Corp., Ltd. Besides, the expanding size of lending to small firms may lead to higher risks, said Ai. He suggested banks improve the risk evaluation and collateral system for loans to small firms.