The China Banking and Insurance Regulatory Commission (CBIRC) has released new guidelines aimed at getting banks to increase lending to small businesses.
According to a report in Financial Times, the new directives were announced Wednesday (March 13) as China looks to overcome financing roadblocks in an effort to get the economy growing again. Economists have pointed to a lack of financing for small and privately owned businesses as the reason for the slowdown in growth.
The report noted that small businesses and private enterprises have suffered more from the government’s efforts to reduce financial risk, which decreased lending to those companies at a faster rate. Banks have been reticent to lend to small businesses in China because their default rates are higher.
On Wednesday (March 13), the CBIRC called on lenders to increase the number of loans issued to small and micro enterprises by 30 percent by the end of 2019 compared to the beginning of the year. The banks have to offer the loans at what the regulator describes as a reasonable interest rate. They are also allowed to have a non-performing loan ratio for small business loans that are three percentage points higher than the rate for their overall loan book, reported the Financial Times.
China’s efforts come as economic growth is slowing in the country and Beijing is embroiled in a trade war with the Trump administration. At the end of last year, China’s central bank announced a new policy tool aimed at boosting lending to small and private companies. At the time, it said it would roll out a targeted, medium-term lending facility to provide a long-term, stable source of funding for financial institutions based on the growth of their loans for small and private firms.
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