Regulators, banks seeking to reform small business loans

A government-backed credit rating agency scores micro and small enterprises registered at the platform, and banks refer to the scores when looking for clients that meet their business loan requirements.

"We will keep improving the functions and efficiency of the platform, enhancing its capability of providing comprehensive financial services, and optimizing financial technology-based risk evaluation and the use of big data, so that the platform will reach a larger number of small businesses more quickly at lower financing costs," said Wang Lanfeng, chairwoman of the Bank of Suzhou Co Ltd, a regional commercial lender in the Yangtze River Delta, which is authorized by the local government to take charge of the construction and operation of the platform.

As of April 15, 36,292 enterprises were registered with the platform, posting financing demands totaling 603.36 billion yuan ($89 billion), of which 97 percent were satisfied by banks.

The Suzhou city government also set up a 1-billion-yuan credit guarantee fund to enhance the credit of light asset small and medium-sized enterprises that have growth potential, in support of banks' granting of credit up to 5 million yuan to such companies based on their credibility. If a company defaults on a loan under the credit guarantee program, the fund will share 65 percent of the loan loss, banks 20 percent, and financial guarantee companies or insurers 15 percent.

Although risks have occurred on more than 20 million yuan of loans granted by the Bank of Suzhou under the credit guarantee program, the bank's NPL ratio for this type of loan was only 0.4 percent, thanks to government compensation.

All levels of governments can do more to increase their support for private enterprises, such as ensuring a successful launching and implementation of risk-sharing mechanisms to stimulate banks to offer small business loans with no collateral, promoting the government's sharing of information on private enterprises with financial institutions for better risk management, and further cutting taxes and fees to reduce corporate burden, said banking industry experts.

Greater involvement of large State-owned commercial banks in small business lending is also necessary, as their cost of capital is lower than that of smaller banks, said Cao with the China Banking and Insurance Regulatory Commission's office in Taizhou.

He emphasized that banks should follow strategies of differentiated competition in terms of small business banking according to their own characteristics and advantages, to avoid vicious competition.