Regulator issues guidelines to make loan renewal easier

The China Banking and Insurance Regulatory Commission Beijing Office announced on Thursday it has issued guidelines for banking institutions on renewing micro and small business loans to shorten the financing chain and reduce financing costs.

The guidelines aim to cut unnecessary so-called "passageway business" and bridging finance that "bridges" the gap between the time when a company's money is set to run out and when it can expect to receive an infusion of funds later on, under the premise that banking institutions will meet the requirements on internal control and risk management.

"The loan renewal policy is actually a credit policy to incentivize lending to high-quality enterprises," said Jiang Ping, a senior official at the China Banking and Insurance Regulatory Commission Beijing Office.

"For companies that have run into temporary operational difficulties but still have enormous potential for development, banks should help them get through the tough times by renewing their loans. However, banks are forbidden from covering or delaying risk exposure associated with lending to 'zombie firms', which cannot repay loans, in the name of loan renewal," she said.

In the guidelines, the regulator set detailed rules on the basic prerequisites that micro and small enterprises should meet to renew their loans and on the regulatory requirements for banking institutions to do this type of business.

The loan renewal policy does not apply to real estate companies or enterprise group head office that are not engaged in production and business operation. Besides, qualified companies should not have delinquent loans and interests with malice, according to Jiang.

In terms of pricing, the regulator said commercial banks should adhere to market principles and encouraged banks to renew micro and small business loans at a lending rate no higher than the previous rate.

As of the end of 2018, the balance of micro and small business loans of the banking sector in Beijing increased by 15.23 percent year-on-year to 1.2 trillion yuan ($176.95 billion). During the same period, the number of micro and small enterprises that received loans grew by 59,500 to 257,200.

A recent survey on 617 micro and small businesses in 200 villages in Beijing's peripheral areas found that at the start-up phase, 13 percent of the businesses obtained bank loans, 13 percent borrowed from friends and relatives, 8 percent secured funding from microcredit companies, nearly 8 percent received loans from small lending services offered by Alibaba Group Holding Ltd and Tencent Holdings Ltd, while the majority of business owners used their own money or borrowed from individual creditors, said Mo Xiugen, director of research at the Chinese Academy of Financial Inclusion at Renmin University of China.

He advised policymakers to encourage joint-stock commercial banks and microcredit companies to play a bigger part in providing financing to micro and small companies, as these financial institutions are more flexible and experienced in serving small business clients than large State-owned commercial banks.