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Banking regulator encourages loans to small firms
By Zhang Fengming |
February 25, 2011, Friday
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Online Edition
Online Edition
SMALL businesses could be the most vulnerable this year due to monetary tightening despite regulators' effort to boost credit to them, analysts said today.
Bankers said they find a trend of consolidation amid the tighter monetary policy and expected bigger corporate clients to benefit from their scale of economy on the short-supply of credit.
China shifted its monetary policy from accommodative to prudent this year to tame inflation and ward off asset bubbles, resulting in a smaller supply of credit.
Against the backdrop, China's top banking regulator said it would ease its bad loan control on small business to encourage more banks to lend to small firms which have difficulty obtaining loans due to their lack of credit record and small scale.
"But how can you expect banks to issue credit to those small companies, knowing their default risks?" questioned Qiu Zhicheng, a Guosen Securities Co analyst.
"The banking regulator's policy acted more like a stance rather than a shot in the arm to the credit-thirst small companies."
The China Banking Regulatory Commission reiterated on Thursday that it wants the credit to smaller businesses to outgrow the growth of total credit.
Economists said they expect this year's new credit to be around 7 trillion yuan, down from last year's beyond-target 7.95 trillion yuan.
"Credit growth is slowing down after a raft of tightening measures lately," said Hu Yuexiao, a Shanghai Securities Co analyst. "Regulators also squeeze the credit supply by asking banks to put aside more provisions against potential sour assets."
Hu said he expected the banks to extend 600 billion yuan of new yuan-backed credit in February, down from January's 1.04 trillion yuan.
The central bank has raised interest rates three times since October. The reserve requirement ratio has risen eight times since 2010.
In 2010, new loans to small businesses increased 35 percent, outpacing the 25 percent grow in total new loans and accounting for 23 percent of total new loans.
The non-performing loan ratio for smaller companies dropped to 3.3 percent at the end of 2010 from 5.3 percent at the start of the year, according to the regulator.
Bankers said they find a trend of consolidation amid the tighter monetary policy and expected bigger corporate clients to benefit from their scale of economy on the short-supply of credit.
China shifted its monetary policy from accommodative to prudent this year to tame inflation and ward off asset bubbles, resulting in a smaller supply of credit.
Against the backdrop, China's top banking regulator said it would ease its bad loan control on small business to encourage more banks to lend to small firms which have difficulty obtaining loans due to their lack of credit record and small scale.
"But how can you expect banks to issue credit to those small companies, knowing their default risks?" questioned Qiu Zhicheng, a Guosen Securities Co analyst.
"The banking regulator's policy acted more like a stance rather than a shot in the arm to the credit-thirst small companies."
The China Banking Regulatory Commission reiterated on Thursday that it wants the credit to smaller businesses to outgrow the growth of total credit.
Economists said they expect this year's new credit to be around 7 trillion yuan, down from last year's beyond-target 7.95 trillion yuan.
"Credit growth is slowing down after a raft of tightening measures lately," said Hu Yuexiao, a Shanghai Securities Co analyst. "Regulators also squeeze the credit supply by asking banks to put aside more provisions against potential sour assets."
Hu said he expected the banks to extend 600 billion yuan of new yuan-backed credit in February, down from January's 1.04 trillion yuan.
The central bank has raised interest rates three times since October. The reserve requirement ratio has risen eight times since 2010.
In 2010, new loans to small businesses increased 35 percent, outpacing the 25 percent grow in total new loans and accounting for 23 percent of total new loans.
The non-performing loan ratio for smaller companies dropped to 3.3 percent at the end of 2010 from 5.3 percent at the start of the year, according to the regulator.
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