Mainland's biggest commercial bank has increased funds to small firms by 31.8b yuan since the beginning of the year China's biggest commercial lender increased its outstanding loans to small and medium enterprises (SMEs) by 63.8 per cent within a year, answering a government call for stronger financial support for small business. Industrial and Commercial Bank of China (ICBC) reported outstanding SME loans of 81.6 billion yuan excluding its bill discounting business, an increase of 31.8 billion yuan since the beginning of the year. Almost half the net increase was booked in the past three months, the bank said. Historically, China's banking sector, dominated by state giants, has been biased in its lending towards large state-controlled companies. ICBC's outstanding SME loans accounted for 1.3 per cent of its overall loan book at the end of December last year. This year, the People's Bank of China and the China Banking Regulatory Commission have repeatedly urged banks to take concrete measures to expand lending to SMEs. The calls were prompted by a government policy move last year to urge better support for SMEs and private companies, increasingly seen as a source of economic growth and job creation to cushion the job losses from state company restructuring. In October, People's Bank of China governor Zhou Xiaochuan called for greater liberty for large, investment-grade companies to tap the bond market for funds, thereby freeing banks to extend more loans to SMEs. Alongside the first interest rate rise in nine years in October last year, the central bank eliminated a lending-rate ceiling, giving banks freedom to assess the risks of loans to small companies. Growing peer competition for reliable loan clients has limited banks' ability to charge large state-owned clients higher rates. Therefore, expanded SME lending might expand banks' interest rate spread, leading to greater profitability of a sector heavily reliant on net interest income. However, independent analysts have questioned mainland banks' ability to make use of the new freedom because of their inexperience of risk pricing that follows decades of tight rate control and traditionally sloppy due diligence. The risk, they say, would be compounded by the infancy of the national credit database and a general lack of corporate transparency in the country. While the government order is hard to ignore, some leading bankers have said they would expand lending to small business gingerly as banking reform and even public listings place a greater premium on lenders' asset quality rather than business growth. ICBC said it had managed to keep the ratio of its non-performing SME loans at about 2 per cent. 'We've managed to maintain a good quality SME loan portfolio,' the bank said. 'ICBC will continue to push for the expansion of its SME business.' A consortium of investors led by Goldman Sachs is set to sign an agreement in January to invest about US$3.7 billion for 10 per cent of the bank after winning approval from the State Council.