Enterprises that have poor environmental records risk being rejected for bank loans under a nationwide credit system that factors environmental information into loan applications.

The People's Bank of China (PBOC), the central bank, is working with the State Environmental Protection Administration (SEPA) to push the initiative, according to Su Ning, the bank's deputy governor.

"This (move) will encourage enterprises to think more about the effect their operations have on the environment," Su said at a press conference yesterday in Beijing.

The initiative combines legal, economic and administrative means to fight against pollution, he said, noting that the move would compliment the central government's efforts to protect the environment.

The concerted action by the two departments is also expected to reduce the risks borne by commercial banks.

As China strives to strike a balance between economic growth and environmental protection, industrial projects that contravene State environmental policies will be halted, creating potential risks for the commercial banks that provided funds for the projects, said Dai Genyou, director of the central bank's Credit Management Bureau.

"If banks lend money to enterprises that are later ordered to close down for violating environmental rules, banks will suffer losses," Dai said.

Once the new credit system is in place, commercial banks will first check the environmental records of borrowing firms before lending them money, he added.

Zhang Lijun, deputy director of the SEPA, said information collected on environment-related law enforcement since 2003 would be put into the central bank's credit database.

The environmental records of enterprises are only part of the non-financial data that has been or will be included in the central bank's credit system to help strengthen commercial banks' lending security.

The central bank is also cooperating with the social security, customs, construction, commodity quality supervision, taxation and legal departments to bring stability to the country's corporate finance system.

By the end of last year, the corporate credit database had grown to 11.17 million credit records, 44 percent of which represented enterprises that had borrowed money from commercial banks.

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