The China Banking and Insurance Regulatory Commission (CBIRC) is pushing for the domestic finance sector to further expand lending to micro-and-small enterprises (MSE’s) and to continue to “sacrifice profits” in order to reduce financing costs for the real economy.
On 31 March CBIRC issued a public call for “increases in the volume and quality” of MSE financial services in tandem with reductions in costs.
CBIRC said it would push for banks to “strengthen the management of loan pricing, rationally reduce interest rates for loans, as well as alleviate burdens and transfer profits in order to reduce the financing costs of the real economy.”
Future areas of emphasis will include:
- Continuing to expedite expansions in internal demand.
- Expanding financial support for key areas including the digital economy, upgrades in manufacturing equipment and investment in technological transformation, and new models of urbanisation.
- Improving financial services that are of benefit to expanding and upgrading consumption.
- Expediting the rational transformation of savings into investment.
A CBIRC official said that it would establish and improve measures to ensure that Chinese banks have the “courage and will” to extend credit to MSE’s, including the continuation of “differentiated arrangements” in the following four areas:
- Funding side differentiation – guiding commercial banks to provide discount funds transfer pricing (FTP) for micro and small-loans. At present Chinese commercial banks that operate on a nationwide basis already provide FTP discounts of between 50 and 100 basis points for financial inclusion MSE loans.
- Internal assessment differentiation – requiring that commercial banks raise the weighting of financial inclusion indices to at least 10% in their comprehensive performance assessments of branches.
- Risk management differentiation – CBIRC pushes for commercial banks to adopt a “tolerance threshold” for the non-performing loan ratio (NPL) of financial inclusion MSE loans which is three percentage points higher than the NPL for all loans. CBIRC also said that it would “appropriately” increases this tolerance threshold in certain areas that were severely affected by the COVID-19 pandemic.
- Due diligence differentiation – CBIRC has required that commercial banks “refine” their internal systems for the due diligence of MSE’s when extending credit.
In 2020 CBIRC set the target of a 1.5 trillion yuan “profit transfer” from the Chinese financial sector to the real economy, amidst concurrent measures to keep the economy afloat during the COVID-19 pandemic.
These measures included “pragmatically reducing enterprise financing costs, reducing interest rates, reducing fees and supporting enterprises in the implementation of restructuring and debt-equity swaps.”
As of the end of 2020 the financial inclusion MSE lending balance stood at 15.3 trillion yuan, for a YoY rise of 30.9%, while the interest rate for new financial inclusion MSE loans was 5.88%, for a decline of 0.82 percentage points compared to the end of 2019.
CBIRC also called for the Chinese banking sector to step up lending to manufacturers as part of the central government policy goal of making China a “great manufacturing power.”