Chinese authorities urged banks on Monday to step up financial assistance for small and micro private firms as the government pushes reduction of discriminative loan approval processes.
According to Xinhua, the China Banking and Insurance Regulatory Commission (CBIRC) released a document addressed to big state-owned lenders that ordered them to increase the loans they offer for small and micro companies by at least 30 percent in 2019.
Vice Chairman of the commission, Wang Zhaoxing said during a Monday press meeting that private firms borrowing 10 million yuan or less saw an annual increase of more than 21 percent in 2018. The increase pushed the commission to make amends to its requests from lending companies.
The document said, "Stricter supervision and evaluations will be adopted to ensure that loans to private firms take up a larger share of all new lending to businesses and keep the financing cost at a reasonable level."
The CBIRC document also asked commercial banks and lending firms to produce an outline of their annual lending targets for private companies before March ends. Furthermore, the commission said it will keep monitoring lending companies on a quarterly basis.
Over the past years, Beijing has been encouraging banks and lenders to provide a more improved business environment for private companies that need funding for their projects and business ideas. The Chinese government believes that pulling smaller firms up will help strengthen the country's economy.
With the new document's release, it is expected that lenders and commercial banks will allow for small and micro-borrowers to enjoy the same rates and credit rules that state-owned and huge enterprises are provided with.
Furthermore, banks and lending companies can no longer set requirements that connote discrimination among private-owned firms that need help with financing.
Reuters noted that most firms in China's private sector previously obtained funding from shadow banking but a crackdown on these activities was initiated by the government. On the other hand, Beijing's new order is expected to open new opportunities for private-owned companies.
Huge banks in China have stated in the past that the reason they prefer state-owned companies is due to lower credit risks. Smaller companies, on the other hand, have had a history of higher credit risks that some lenders are hesitant of.
The CBIRC said it will continue to discuss the potential of eradicating industry restrictions that have been preventing insurance funds to grow equity investments. For now, Chinese banks and lenders are expected to provide more flexible options for private firms in need of loan insurance products and services.
