Chinese regulators hope that the further growth of governmental financial guarantee agencies will help to facilitate lending by commercial banks to small businessdx and the agricultural sector.
As of the end of 2019 China was host to a total of 5562 financial guarantee institutions, with paid-in capital of 1.1745 trillion yuan, and a financial guarantee balance of 2.7017 trillion yuan.
The Chinese central bank’s official news outlet recently highlighted the ability of financial guarantee agencies to “expedite the circulation of funds and drive financial inclusion,” while also highlighting ongoing challenges such as “low magnification” and “inadequate focus on support for small business and agriculture.”
These concerns have prompted the China Banking and Insurance Regulatory Commission (CBIRC) to call for province-level authorities to compile lists of “governmental financial guarantee agencies,” and issue the “Notice Concerning Properly Performing Regulatory Work for Governmental Financial Guarantee Agencies” (关于做好政府性融资担保机构监管工作的通知) on 11 August.
CBIRC officials said that the Notice calls for governmental financial guarantee agencies to “prioritise loan guarantee operations, focus on supporting small businesses and agricultural, pragmatically reduce guarantee fees, expand the guarantee scope and operate for protection of capital and minimisation of profit.”
Local authorities will be required to conduct onsite and off-site inspections of financial guarantee agencies to determine their capital standing, risk control capability and compliance levels, and ensure that agencies on lists are stable, solvent and possess controllable risk, and are capable of fulfil their core role of supporting small enterprise and agriculture.
CBIRC officials said agencies on the list should “strengthen their own capabilities” and “drive long-term effective mechanisms to make them capable and willing to provide guarantees.”
Agencies are also called upon to “establish strong internal control systems, strengthen risk management systems and digitised organic integration, and innovative guarantee models.”
CBIRC will push for financial guarantee agencies to “research and develop guarantee products that are suitable for intellectual property rights financing, accounts receivable financing and medium and long-term R&D financing,” and “provide more flexible and varied financing models to customers, expanding the coverage scope of governmental financial guarantees and reducing guarantee rates.”
With regard to cooperation between banks and guarantee agencies, CBIRC calls for banking sector financial institutions to “explore the undertaking of parallel review and approval with governmental financial guarantee agencies; establish full procedure time restriction systems, reduce the loan review and approval time and raise the efficiency of loan issuance.”