Beijing raises local lenders' loan quotas in boost for small firms

Beijing has boosted loan quotas for local commercial lenders by an unexpected 10 per cent, compared with a 5 per cent increase for state-owned lenders, as concern grows that the lower amount might not be enough to meet the financial needs of small businesses.

The People's Bank of China raised local and regional lenders' quotas because of their larger client base of small and medium-sized enterprises, according to state media reports yesterday. The 10 per cent increase was higher than the expected 5 per cent figure, first reported last week, that would apply to all commercial banks.

The latest move would allow banks to extend 200 billion yuan (HK$227.92 billion) worth of extra loans to small businesses and farmers, up from the previous estimate of 182 billion yuan. Analysts had doubts about the effect looser lending controls would have on banks due to the higher risks associated with SME loans.

'It depends on how these window guidances are exercised,' said Zhang Xi, an analyst at China Galaxy Securities. 'Banks might choose to stay away from those cash-strapped SMEs for fear of deteriorating asset quality. That is not going to solve the problem.'

Some SMEs had divided views on Beijing's decision to relax credit controls.

Chen Guoquan, president of the country's largest soyabean product maker Bingquan Industrial, welcomed the move at a time when firms needed extra working capital to buy raw materials and settle utility bills.