Banks turn to SME financing for profits

14:43, November 10, 2009      

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The Q3 2009 reports of listed Chinese banks showed that they are working to strengthen SME (Small and medium-sized enterprise) financing. SME financing has become one of their strategic choices for more profits.

More SME loans

By the end of September, outstanding Renminbi dominated loans for the SMEs have grown by 28 percent this year, according to statistics released by the People's Bank of China (PBOC) and China Banking Regulatory Commission (CBRC).

China's listed banks including the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and China Minsheng Bank have switched their focus to SME loans. In the first three quarters, ICBC's SME financing increased 27.07 percent, or 493.05 billion yuan (72.23 billion U.S. dollars) and CCB's SME loans increased by 16.5 percent, or 169.3 billion yuan (24.80 billion U.S. dollars). The Bank of Communication recording 126 percent of growth in its "Zhanyetong" program, the increase rate is 15.5 billion yuan higher compared with the same period last year.

Small and medium-sized shareholding banks have also adopted their "blue sea" strategy to support SMEs. By the end of the third quarter, outstanding SME loans issued by China Merchants Bank accounted for 46.82 percent of its total Renminbi loans to domestic enterprises, 3.72 percentage points higher than the beginning of this year. Bank of Beijing reported 83.9 billion yuan of outstanding SME loans, 29.5 billion yuan or 54 percent higher compared with the beginning of 2009.

New engine for profits

In recent years, domestic banks have been expanding their retail banking, cash management, investment banking and financial derivative business. Their degree of dependence on company business is declining. However, they are expanding SME financing service.

Research reported by the CCB showed that the increase of SME loans was the result of not only policy guidance but also the banks' marketized operation.

Large-scale enterprises are experiencing lower equity and debt financing cost compared with credit financing. Banks are disadvantaged in pricing negotiation with large enterprises, and thus witnessed negative growth in interest income in the first half of 2009.

Researchers pointed out that the wholesale banking business may contribute less and less to the banks' profits, but their interest margin in SME financing business will remain profitable. A survey showed that commercial banks' loan interest rate to SMEs was 10 to 30 percent higher than the benchmark interest rate.

The "blue sea" of SMEs will be a new growth engine for domestic commercial banks' profits, said analysts.

By People's Daily Online
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