China’s small business lending push could equal US$418 billion in new loans, S&P Global says
- Lending push could lead to higher credit costs and weaker asset quality, but the affect on credit quality is limited
- Loans to micro and small businesses in China totalled about 9.36 trillion yuan at the end of 2018
Beijing’s efforts to boost the availability of capital to the country’s smallest businesses could generate as much as 2.8 trillion yuan (US$418 billion) in new loans if the nation’s banks meet the government’s target to increase business lending this year, according to S&P Global.
In March, Chinese Premier Li Keqiang called for the country’s biggest state-owned commercial banks to increase their loans to micro and small enterprises (MSE) by more than 30 per cent this year as China’s economic growth slows.
“Higher MSE lending will lead to higher credit costs and weaker asset quality. However, the impact on overall bank credit quality is limited,” Harry Hu, a S&P Global credit analyst, said in a research report. “Financial-inclusion MSE loans still make up a relatively small contribution to the banking sector's total loan portfolio, and the government is providing a number of supports to offset the burden.”
The rating agency estimated that loans to micro and small businesses in China totalled about 9.36 trillion yuan at the end of 2018.
S&P said that there has been some confusion about the policy because regulators in China use different definitions for “financial-inclusions MSEs” at different times for different purposes.
As an example, loans cannot be defined as a “financial-inclusion MSE loan” if a single bank’s credit line to the borrower exceeds 10 million yuan, according to S&P.