Boost for SMEs as Beijing relaxes loan quotas at select banks
In another move to support small business amid slowing demand for exports, Beijing will allow locally incorporated foreign banks to raise their lending quotas on a case-by-case basis.
'Banks can submit their applications and appropriate adjustments will be considered based on the situation,' a source quoted an official from the People's Bank of China as saying, confirming a mainland media report.
Sources said the central bank told lenders earlier this week that it was possible for them to adjust their loan limits slightly, particularly when demand from small and medium-sized enterprises increased and loan quotas were tight.
A spokesman at Standard Chartered said the bank welcomed the move.
The Shanghai Securities News reported yesterday that the additional quotas could only be used for lending to smaller enterprises, agriculture-related businesses and firms affected by the Sichuan earthquake.
'Not too many details were mentioned when we got the notification,' the source said. 'Of course, we welcome it, but we will still lend prudently, even if we have more quota.'
Bonnie Lai, an analyst at CCB International, said the move was in line with recent reports that Beijing would lift loan quotas for banks to help the SME sector.
Mainland media reported earlier in the week that Beijing boosted the quotas for commercial banks by an unexpected 10 per cent, compared with a 5 per cent increase for state-owned lenders, as concern grew that the lower amount might not be enough to meet the financial needs of small business.
Smaller firms on the mainland are threatened by factors such as a global economic downturn, a stronger yuan, rising costs of fuel and raw materials and higher wages.
Policies on processing trade and increased environmental protection measures are other factors.
Ms Lai said the authorities relaxed the quotas because banks had little lending room to manoeuvre as most of their quotas were expected to be fully used.
She added that by boosting loan quotas banks would then be able to lend to companies that had funding difficulties but were of good quality otherwise.
'The impact on bank earnings this year will be immaterial' since the additional quota would be very small, she said.
Also, despite having net interest income generated from the additional new loans, the return would represent only between 0.5 per cent and 0.8 per cent of the banks' profit for this year.
